I can’t help but think that one of the reasons we’re in the present American financial crisis is because our leaders really thought they could defy financial and moral gravity. Can’t you hear the unspoken thought emanating from the Capitol Dome? “We’re the greatest country in the free world. We can bend markets to our will and borrow as much as we want to do it.“
Fannie Mae and Freddie Mac are just symptoms of the deeper problem. The purpose of Fannie Mae (The Federal National Mortgage Association) was to purchase and securitize mortgages as part of a secondary mortgage market that would providing liquidity to the primary mortgage market. Oops – that seems to have backfired. The purpose of Freddie Mac (The Federal Home Loan Mortgage Corporation) was the same. It was created in 1970 to provide competition for Fannie Mae, which had been privatized in 1968 to help balance the federal budget. Oops again – we just blew a $700 billion dollar hole in that plan.
What happened? Loans were made to people who couldn’t afford them. These were termed sub-prime mortgages because the borrowers were below ideal (or even reasonable) standards. These loans were securitized and sold on the secondary mortgage market with the thought that while some of them might go bad, not all of them would, and that the risk was therefore both understandable and manageable. Yet suddenly everyone realized that a pig wearing lipstick is still a pig and confidence in the entire secondary mortgage market suddenly caved in. Gravity.
So the sub-prime mortgage crisis morphed into the credit crisis which has now morphed into a full-blown financial crisis. It’s like a giant sinkhole that keeps expanding. Will the entire economy go down next? The country? If we continue trying to defy gravity, then, eventually, yes, this is precisely what will happen.
So, how do we get our feet back on solid ground? We recognize that we can’t spend more than we take in. No more political games of promising to take from Paul to give to Peter. We can’t all be Peters. We need to stand up where we are Pauls and say, “enough”. No more government expansion. No more deficit spending. No more funny money. If we really want to end this crisis,we ought to return to the gold standard and start shrinking the size of government.
At this point it looks like Obama is going to win this election. If this happens let’s face it: the gravity-defying acrobatics are only going to get more outlandish and the sinkhole will become a gaping chasm.
Wake up, America, before it’s too late.