August 21, 2010

The Economy and the Blame Game

The truth is that all men having power ought to be mistrusted. ~ James Madison

President Barack Obama and liberal members of Congress continue to blame former President George Bush for the current problems with our economy and we’re likely to hear that more and more as the mid-term elections draw near. But frankly, both sides are to blame. And Barack Obama helped in the effort as well by representing ACORN in lawsuits against banks to force them to comply with the easy loans for people who couldn’t afford the houses they were buying, enabling the mortgage meltdown that began this financial crisis.

The saga goes back to the Carter administration and the Community Reinvestment Act that had the well-intentioned goal to reduce discriminatory loan practices in low-income neighborhoods. However, what started our economy on the downhill path was the Clinton administration that wanted home ownership for everyone and pushed for less restrictive credit and lower down payments to qualify for mortgage loans. Banks were pressured to extend home mortgages to individuals whose credit was generally not good enough to qualify for conventional loans. President Bill Clinton’s Secretary for Housing and Urban Development, Andrew Cuomo, helped lead the way for the mortgage meltdown by ratcheting up federal affordable-housing mandates. Cuomo and the Department of Housing and Urban Development Department (HUD) forced the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac") to buy more sub-prime mortgages, as part of Cuomo’s efforts to increase the number of minority home owners. Strict regulations forced lenders into high-risk areas with lower lending standards. These high-risk loans forced banks to abandon sound business practices. They had to make the loans or face stiff government penalties.

So President Clinton’s acceleration of the Community Redevelopment Act and Cuomo’s help in implementation created the market for the risky subprime loans that Democrats now decry as greedy and predatory – it was all the fault of those big, bad bankers … and Bush!

Adding fuel to the fire were Freddie and Fannie, both of which underwrote a plethora of risky home mortgages to buyers who couldn’t repay them.

Barney Frank and Chris Dodd were also knee deep in the middle of this fiasco. To initiate controls over Fannie and Freddie, then-Rep. Richard Baker proposed a bill in 2000 to reform Fannie and Freddie's oversight. Rep. Frank of Massachusetts, who is the House Banking Committee chairman, opposed this legislation to provide oversight in 2000 (when Clinton was still president), saying the legislation and concern about Fannie and Freddie was "overblown."

Of note is that even the Government Accountability Office recommended reform of Freddie and Fannie in a 2004 report.

In 2005, Sen. Chuck Hagel introduced the Federal Housing Enterprise Regulatory Reform Act of 2005 (S.190), designed to establish a single, independent regulatory body with jurisdiction over Fannie and Freddie. Sen. John McCain became a cosponsor of S.190 in 2006, but Democrats blocked these reforms, too. At the time, Barney Frank said that Fannie and Freddie posed no risk to taxpayers.

Senator Christopher Dodd, who heads the Senate Banking Committee, along with Frank, consistently blocked efforts to rein in Fannie and Freddie. Dodd also got preferential treatment from Countrywide, one of the largest subprime loan providers, on two mortgages. Both Dodd and Frank also received campaign contributions from Fannie and Freddie.

According to, from 1989 to 2008, Dodd was the number one recipient of Fannie and Freddie campaign contributions at $165,400, followed by Barack Obama, who received $126,349 in contributions after being elected to the Senate in 2004.

In addition to those mentioned above, there are plenty of others to blame for the crisis. The Federal Reserve cut interest rates after the dot-com meltdown, consumers obliged themselves of the easy loans and bought homes way beyond their means, real estate agents saw higher commissions and encouraged buyers to get into those more expensive homes, mortgage brokers offered the subprime adjustable rate loans with low initial payments, Wall Street firms bundled the risky loans into mortgage-backed securities, ACORN intimidated banks to give risky mortgages and Barack Obama represented ACORN in lawsuits against banks to force them to lower credit standards.

While President Bush foresaw the dangers posed by Freddie Mac and Fannie Mae, and called as early as 2002 for greater regulation of the two, he could have done more to curb excesses in the housing market, more to police Wall Street and more to roll back the Clinton easy mortgage measures.

The saga continued as Bush signed into law the Troubled Asset Relief Program (TARP) that allowed the United States Department of the Treasury to purchase or insure up to $700 Billion of "troubled assets” to address the subprime mortgage crisis. In doing so, he said, “I’ve abandoned free market principles to save the free market system.” Oh, our founders were surely turning in their graves!

To make matters worse, the TARP fund has become a perpetual piggy bank for the Obama administration and Congress, and the program was a no-strings-attached windfall that was used by financial institutions to pay down debt, acquire other businesses or invest for the future or in overseas interests rather than in jobs and programs to help our economy. TARP emboldened Obama and Congress to keep up the spending spree with the porkulus $800 billion American Recovery and Reinvestment Act of 2009 and other bills that have now pushed U.S. debt over $13 trillion.

All of this and the continuing failed policies of the Obama administration have just made the economic situation worse and postponed the inevitable bottoming out of the economy stopping the market from correcting itself. Government intervention started this whole mess back in the Carter administration and has continued to make it worse. Our founders based this nation on a free market and every time throughout history that government has intervened rather than let the free market prevail, it has made the situation worse and prolonged the pain.

The lesson in all this is that we have ventured away from our founding principles of limited government and we desperately need to return to those principles. Further, we shouldn’t believe the campaign rhetoric on either side. Listen, but verify. Do your research on what all politicians stand for and look at the record of their actions. If there is no record, don’t fall for the hope and change message or imprint your own hopes and dreams on them. Get to the bottom of their true ideology and beliefs. Be an educated voter.

A wise and frugal government, which shall leave men free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned - this is the sum of good government. ~Thomas Jefferson

The following are some interesting videos featuring some of the cast of characters who facilitated the meltdown.

August 8, 2010

America is a Republic

There’s a reason that Article IV Section 4 of the Constitution states: "The United States shall guarantee to every State in this Union a Republican form of Government, ….

There’s a reason that our Pledge of Allegiance says, “and to the Republic for which it stands.”

Our founding fathers set forth our government as a Republic and they were very deliberate in their efforts to not put the word democracy in the Declaration of Independence or the U.S. Constitution.

For posterity, they gave us also the Federalist Papers to explain their actions in crafting our founding documents. James Madison, known as the father of our Constitution, wrote in The Federalist Papers, No. 10, "Democracies have ever been spectacles of turbulence and contention; have ever been found incompatible with personal security or the rights of property, and have in general been as short in their lives as they have been violent in their deaths". He went on to explain that a republic was the cure that they were seeking, a cure from the tyranny of a king as the Declaration charged, "… has abdicated government here ... He has plundered our seas, ravaged our coasts, burnt our towns and destroyed the lives of our people.”

Many people falsely believe that our form of government is a democracy or a representative democracy. For the past 100 years or so, there are those who have tried to rewrite history and would have people believe that America was created as a democracy. Our founders were fearful of a democracy and wanted neither this nor a monarchy.

The government in a democracy is by the people or a rule of the majority. The power resides with the people and can be exercised by them either directly or indirectly. In a republic, the ultimate power rests in the citizens, but it is exercised by a body of elected representatives. The governance in a republic is according to the laws of the land. However, in a democracy, the will of the majority prevails and it can be based upon deliberation or governed by passions, prejudices, impulses or special interests with no restraints or consideration of the consequences.

It is only fitting that the first installment of the Republic Roots blog explains that America was founded as a republic. In the header of this blog, we include the quote from Benjamin Franklin, – the famous response he gave to a woman who asked as he exited the Constitutional Convention, “What have you given us?” “A republic if you can keep it,” Franklin replied.

Franklin knew that people, often in well-funded organizations or who are personal power seekers, would put their own interests above republican processes. The danger comes when people no longer know their history and founding principles.

Sadly, America has strayed from its republic roots. Congress and Presidents have repeatedly overstepped their bounds and assumed powers way beyond their constitutional limits.

Our founding fathers brilliantly set forth checks and balances in government that established it as a republic. Each branch can prevent the other from taking on too much authority. Another balance was states’ rights as expressed in the Tenth Amendment: “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”

In our republic, of the three branches of our government - legislative, executive and judicial - only the legislative branch (the House of Representatives and Senate) is appointed by direct election. As originally outlined in the Constitution, members of the Senate were appointed by the state legislatures, a check and balance on the House that also provided for the interests of the states and a safeguard against demagoguery. That safeguard was overturned by the Seventeenth Amendment in 1913, due to the misguided Progressive movement.

So here we are today with a legislature that rushes pork-laden bills through without even reading them. We have a House and Senate that ignore the will of the people, a President that has abused his executive powers rendering Congress irrelevant and activist judges that legislate from the bench.

America, we are at a crossroads again of deciding whether we want to maintain our liberty or acquiesce to a tyrannical government. Our best defense is to reaffirm ourselves to the brilliant governing documents written by our founders, educate ourselves about the processes and actions of government, watch our politicians like hawks and hold them accountable at the ballot box.

The words of our father of the Constitution, James Madison, still ring true today:

“A well-instructed people alone can be permanently a free people.”

“Liberty may be endangered by the abuse of liberty, but also by the abuse of power.”

“The happy Union of these States is a wonder; their Constitution a miracle; their example the hope of Liberty throughout the world.”

Let us maintain our happy union, preserve our constitutional miracle and remain that beacon of hope and liberty for the world.