The Economic Crisis

Looking for blame? Clinton comes to mind.

By Chuck Muth

The biggest problem I had with this bailout – other than the fact that it’s decidedly socialistic in nature and sets a horrible precedent for taxpayer bailouts of other industries down the road – is the rush to “do something” by President Bush and Congress.

After eight years of “compassionate conservatism” which gave us Homeland Security, the TSA, No Child Left Behind and Medicare prescription drugs, I’m automatically suspect of anything President Bush says about a “crisis” necessitating government action. In fact, my knee-jerk response is automatic opposition until proved otherwise.

And when you consider that it was Congress and President Clinton who really set us on this path to financial meltdown over a period of more than 20 years, you’ll pardon me if I’m skeptical of a “rescue” plan hatched by President Bush and Democrat Congress in less than a week.

The fact is, most Americans are just now starting to understand the issue itself. And before they fully grasped what went wrong and how, Congress tried to approve the “fix.” Like many well-intentioned government programs, the cure was worse than the disease.

Here are three items that will help you get your arms around this extremely complicated financial mess, including the fact that today’s crisis isn’t the fault of the free market. The “root cause” (liberals love to talk about “root causes”) was Congress and the Clinton administration trying to manipulate the free market on behalf of a voter constituency. Specifically, it was their push for “affordable housing” that caused this “disturbance in the force.”

WALL STREET BAILOUT 101 (according to columnist Henry Lamb)

“The meltdown in the financial markets has caused the finger of blame to spin like a weathervane in a hurricane. The underlying cause of the debacle, however, has been largely ignored. Driven by ‘progressive’ Democrats and Republicans, the cause is the relentless shift from a free market economy to a socialist economy.

Until the Roosevelt era, the responsibility and privilege of having a home was left solely to the individual.

Few people realize that Fannie Mae (Federal National Mortgage Association) was created in 1938 by FDR, to provide a federal guarantee for home loans extended by local banks. Freddie Mac (Federal Home Loan Mortgage Corporation) was created in 1970, during Nixon’s reign.

Both were designed to buy mortgages from local lenders as a way to insure an adequate supply of money for local lenders. These ‘secondary’ mortgages were packaged into ‘bundles’ of securities that were traded among an array of financial institutions.

During the 1960s, the United Nations produced the International Convention on the Elimination of All Forms of Racial Discrimination. Article V(e)(iii) proclaimed that all people had a ‘right’ to housing. Both the Kennedy and Johnson administrations supported the treaty, but it was not ratified until the Clinton administration, Nov. 20, 1994.

…To meet its obligations under the U.N.’s Racial Discrimination Treaty, the Clinton administration instructed Fannie Mae to expand loans to low-income borrowers, according to Franklin D. Raines, Fannie Mae’s chairman.

Thus, the ‘sub-prime’ market was born, and government guaranteed-loans were extended to millions of families who could not qualify for a mortgage in a free market economy, but easily qualified under the new socialist scheme.

In 2005, Republican senators saw the danger and tried to reform these institutions with the Federal Housing Enterprise Regulator Reform Act (S.190), but Democrats blocked the bill.

…AIG, the international insurance giant, and other Wall Street and international financial institutions bought the bundles of mortgage securities that Fannie Mae and Freddie Mac offered. Everybody involved made a ton of money, and housing for low-income families expanded exponentially – just as the Treaty on Racial Discrimination and the proponents of sustainable development had predicted.

With all the new loans being made, the home building industry flourished, the real estate industry flourished, all industries related to housing flourished – until the market became saturated.

Home values stopped rising. Housing inventories began to rise. Home values began to decline. Foreclosures began to rise. Homebuilding slowed, housing-related industries began to lay off workers. Energy prices began to rise. Paychecks fell short of family needs. Foreclosures skyrocketed.

Suddenly, there was little or no value in the bundles of security Fannie Mae and Freddie Mac had packaged. Financial institutions found themselves in possession of massive ‘assets’ that had no value. Creak, crumble, crash! The financial markets came tumbling down.

The piper must be paid. The question is whether to do it now – and let the chips fall where they may, or, to kick the can down the road and pay the piper later.

The answer, of course, is to kick the can into the next generation, with another leap toward socialism. The bailout plan – whatever the particulars – is nothing short of a government takeover of the financial industry. The next president will have to sort it out and build the road toward future recovery or final disaster.”

– Columnist Henry Lamb


The following story from WAY back in 1999, published by the New York Times, predicted that what is happening today would happen.

“In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders. The action, which will begin as a pilot program involving 24 banks in 15 markets — including the New York metropolitan region — will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s.

‘From the perspective of many people, including me, this is another thrift industry growing up around us,’ said Peter Wallison a resident fellow at the American Enterprise Institute. ‘If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.’

…Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.”


BeforeĀ Congress unwisely rushes in to make matters worse with another bailout bill they should understand and explain this issue better to those misguided souls who tell you they’re voting for Obama.

Chuck Muth is president of Citizen Outreach, a non-profit public policy advocacy organization in Washington, D.C. The views expressed are his own and do not necessarily reflect the views of Citizen Outreach. He may be reached at:

One thought on “The Economic Crisis”

  1. I am amazed by the total ignorance of most politically active people, in reference to the ECONOMY.

    Many apparently educated people act like the economy is a living breathing creature, but it’s not. And the economy isn’t something managed by the federal government or politicians, either.

    The economy is you and me buying STUFF. Nothing more.

    When we buy STUFF, the economy is good. When we don’t buy STUFF, the economy is bad. A great way to see this is to look at a family of 4 or 5. A typical American family experiences peaks and valleys in their lives and income. They have paydays, and bonuses, and slow business weeks, and bills and emergencies, and entertainment costs, etc. When money gets tight, spending slows down. When income is high, spending increases.

    But the process gets very complicated when credit is infused into the formula.

    All of a sudden that family is buying stuff right and left, spending hundreds and sometimes thousands at Sam’s or Costco, buying new cars that get poor gas mileage, purchasing vacation or investment homes, and traveling all over the country or world.

    And when the credit runs out, spending stops, and a hard lesson is learned as they try to repay all of their debt at 10% to 30% interest.

    So how do they fix their problem? Tighten their belts, grow a garden in the back yard, allow a voluntary repo of the Hummer, let the condo foreclose, continue at the job they hate and sell vegetables on the corner on Saturdays until all of their debt is paid off.

    Please explain how giving this family more credit will help them. And tell me how giving $700 Billion dollars to the people who pressured them into this situation will help them.

    Not for one second does ANY person earning less than $100k believe that this “crisis” resulted from bad policy decisions of Democrats or Republicans. It is the result of CORRUPT PRACTICES by the Democrats AND the Republicans, influenced by greedy executives of very large corporations.

    Want to see where the US will be in 50 to 100 years if this continues? Take a look at Indonesia.

    If you’re laughing, it closer to 30.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s