In the year 1858 the incumbent Democrat senator of Illinois, Stephen A. Douglas, engaged his challenger, Abraham Lincoln, in a series of nine debates – one in each of the Congressional Districts of Illinois. These debates were a foreshadowing of the issues that would dominate the presidential election of 1860. The most discussed issue of the Lincoln-Douglas Debates was the future of slavery in America.
On August 21st, during their debate in Ottawa, Illinois, Douglas once again tried to lure Lincoln into confessing a belief that the Negro was every bit the equal of the white man. Lincoln didn’t take the bait.
Lincoln understood that people believe the evidence of their eyes; he knew that very few people in the audience had ever met a Negro who was not an uneducated, superstitious, country rustic or, at the very least, more superstitious and unlettered than they were. To argue that black and white were equally developed was a nonstarter for Lincoln because everyone in the room knew it wasn’t true. Lincoln sidestepped the trap and answered with these words: “I agree with Judge Douglas he [the Negro] is not my equal in many respects – certainly not in color, perhaps not in moral or intellectual endowment. But in the right to eat the bread, without the leave of anybody else, which his own hand earns, he is my equal and the equal of Judge Douglas, and the equal of every living man.”
In other words, no matter how primitive a man may be, he is entitled to the fruits of his labors. To put it more simply: slavery is theft.
The folks in Ottawa might never have met a single educated Negro, but every one in the audience knew the Ten Commandments by heart. Every person in the room knew that no less an authority than God Almighty had commanded them not to covet or steal. Mr. Lincoln had just demonstrated that slavery violated God’s commandments because slavery was institutionalized thievery. The Negro people were not required to prove themselves worthy of keeping their earnings; they had a God-given right to their earnings, as do we all.
The common expression “wage slave” to denote the American taxpayer is not an exaggeration. When our government compels us to relinquish our hard-won earnings to the tax collector, our government is assuming a role analogous to that of a slave master: the agents of government have struck the pose of beneficent father figures who assure us that they will spend our stolen wealth for our own good. They “just know” that they are doing the right thing.
This overbearing paternalism can retain an aura of legitimacy only so long as we are, in fact, the beneficiaries of our pilfered earnings. If the agents of government squander our earnings for the benefit of con artists, fools, get-rich-quick speculators or illegal aliens, then the agents of government have lost their legitimacy; they have, in fact, become our masters and we have become their slaves.
No single agent of our government exemplifies the spirit of overbearing exploitive paternalism more than Barack Obama. In his own mind, Barack Obama was born to rule over us; he “just knows” it is his destiny to strip mine the bank accounts of hardworking Americans so he can secure his purchase on power by showering our stolen wealth on countless halfwits, real-estate speculators and illegal aliens, who in turn will shower Mr. Obama with adulation and votes.
Tricky Barack’s Bogus Plan
With his signature flare for full-throated hogwash, our newly minted president piously announced:
“We have launched a housing plan that will help responsible families facing the threat of foreclosure lower their monthly payments and refinance their mortgages. It’s a plan that won’t help speculators or that neighbor down the street who bought a house he could never hope to afford, but it will help millions of Americans who are struggling with declining home values.”
And what exactly was Obama’s detailed plan for excluding speculators and the flagrantly irresponsible fools from his big taxpayer-funded bailout? He didn’t have any such plan. As usual Barack Obama was just blowing hot air.
Soon thereafter, Sheila Bair, the erstwhile head of the Federal Deposit Insurance Corporation, began telling people that it wasn’t likely that taxpayer money would be withheld from folks who lied to loan officers about their income or assets for the purpose of getting themselves a mortgage they could not afford. During a chat on National Public Radio she assured those deadbeats that, “I think it’s just simply impractical to try to do a forensic analysis of each and every one of these delinquent loans.”
In a heartbeat, Federal Reserve Chairman Ben Bernanke was defending a taxpayer-funded rescue of reckless lying mortgage cheats; he actually likened them to fools who smoke in bed:
“I think the smart way to deal with a situation like that is to put out the fire, save him from his consequences of his own action but then, going forward, enact penalties and set tougher rules about smoking in bed.”
In essence, Mr. Bernanke tossed the principle of moral hazard into the wastebasket: reckless jerks would be rewarded for their reckless behavior. Gone in a flash was the moral ideal that people must live with the consequences of their decisions; gone was justice itself, the notion that people should get what they deserve.
The Obama administration has assaulted the traditional underpinnings of our moral and economic systems and hammered them to dust. These economic illiterates have lavished historically unprecedented amounts of our earnings on self-indulgent automakers and their complicit unions and on irresponsible speculators, all to no effect. The Obama squad has shoveled tens of billions of taxpayer dollars to states that spent extravagantly during the good years and put nothing aside for the hard times that always come.
The Obama housing plan will compel people who selected homes within their means to subsidize the mortgages of folks who signed contracts for properties that were hopelessly beyond their reach; the Obama plan will compel honest people to subsidize the comfortable lifestyles of dishonest people, including illegal aliens.
Take note of the fact that America’s “mortgage crisis” is essentially a five-state foreclosure problem. The national average of mortgages that are “underwater,” that is to say, that have contract prices that exceed the market values of those properties, is 14%. Even so, in New York the underwater rate is a mere 4.4% But in those five states with whacking big illegal alien populations, the underwater rates are over the top – accounting for the bulk of America’s troubled mortgages. Nevada leads the country with an underwater rate of 48%, almost half of all mortgages. In California the rate is 27%; in Arizona, 29%; in Michigan, 38.6% and in Florida the rate is 29.2%.
In November of 2008 only four states, Arizona, California, Florida and Nevada, accounted for 53% of all November foreclosures (136,779 out of 259,085). The 2005-2007 real estate bubble was concentrated in those four states. States that didn’t produce a housing bubble are not enduring foreclosure problems today. In West Virginia, for example, there were only 34 foreclosures in November of ’08. Minus those four states, foreclosures in the remaining 48 states were up by only 1.61% in November of 2008 compared to November of 2007. When those four states are included in the statistics, the foreclosure rate leaps up to 28.22%. It’s bracing to think that a healthy and enforced immigration policy might have averted the current global economic meltdown.
Liberal Architects of Destruction
The entire meltdown can be traced back to liberals and their reckless liberal policies. Those two spendthrift behemoths, Fannie Mae and Freddie Mac, were presented to the public as “private-sector institutions” that were owned by the government, which is an economic oxymoron. Both of these institutions were political playthings of the Clinton administration and were encouraged by the Clinton Treasury to begin floating sub-prime loans to people with trashy credit histories. Banks that balked at giving shaky loans got a stern dressing down from Clinton’s attorney general, Janet Reno.
Bill Clinton’s treasury secretary for all eight years was Robert Rubin. Mr. Rubin had spent twenty-six years at Goldman Sachs before joining the Clinton team. After his government service, Mr. Rubin spent the next eight years as Director and Senior Counselor of Citicorp. Bill Clinton had praised Mr. Rubin as the “greatest secretary of the Treasury since Alexander Hamilton.”
Please note that in 1997 Robert Rubin used all of his powers of persuasion to oppose the regulation of mortgage-backed derivatives, which was suggested by the prudent head of the Commodity Futures Trading Commission, Mr. Brooksley Born. It was Robert Rubin who had championed the repeal of the time-tested Glass/Steagall provisions that had kept commercial banks and investment banks separate and distinct institutions since 1933. Rubin was hot for the Sarbanes/Oxley Act which would tear down that firewall and begin the penetration of risky investment behaviors into the entire American banking system. In 1997 Bill Clinton ignored all warnings and signed Sarbanes/Oxley into law. Soon derivatives became all the rage.
A mortgage-backed derivative is just a bunch of mortgage contracts that have been bundled and sold as an investment opportunity. The person who buys this bundle hopes to make a long-term profit as the mortgages mature and the homeowners pay back their principal plus interest. If the homeowners are solid credit-worthy citizens, then the purchaser of the derivative is assured of his profit, but if the home buyers are just an assortment of liars and deadbeats, then the derivative is just a wild gamble.
Our economy is collapsing because giant and interconnected financial institutions began buying up millions of mortgage contracts that had been signed by millions of people who were not creditworthy. Making matters worse, these shaky derivatives were being fraudulently mislabeled and resold as first-rate “triple A” securities when they were, in fact, bottom-ranked triple-B paper.
When the upward trend of rising home prices finally peaked and then declined, overextended home buyers began to default on their mortgage payments. It was then that the mortgage-backed derivatives were exposed as junk paper and overexposed financial institutions began imploding. The ledger losses were gargantuan, resulting in the failures of Bear Stearns, Lehman Brothers, Merrill Lynch, Washington Mutual and American International Group (AIG).
America’s largest insurance underwriter, AIG, had foolishly sold all of these overexposed financial institutions insurance policies on their mortgage-backed assets; when the derivatives became trash, AIG didn’t have enough money to meet its insurance obligations to the derivative buyers. That’s when Barack Obama declared that AIG was “too big to fail” and began throwing billions of our tax dollars at AIG. It was the Perfect Storm of lunatic liberal utopianism run amok.
Obama Makes It Worse
As bad as the economy is, the Obama crew is making it worse by the hour. Every time an Obama administration official opens his mouth, stock prices tumble as thousands of experienced money managers cast a clear vote of no confidence for Mr. Obama’s ever burgeoning profusion of lavish big-bucks programs, most of which do nothing for the economy but deepen the national debt.
When Treasury Secretary Timothy Geitner took to the podium in January ’09 and told an expectant financial community that Team Obama had only sketchy notions of how to cope with the banking crisis, the Dow Jones industrial average plunged more than 381 points. When Barack Obama signed his so-called stimulus bill, the Dow took another 300-point nose dive as traders took note of the fact that Mr. Obama’s big plans included nothing that would encourage investment or enhance the future value of America’s stock of capital. Worse yet, Obama’s Big Plan will suck capital out of the creative private sector and bury it in political pork for Democrat constituencies, including tens of billions of dollars for social programs that will never stop bleeding the suffering taxpayers because liberal social entitlement programs never go away, they just keep expanding. These enormous costs will be built into the budget baseline – permanently enlarging the size of government and the government’s greed.
Barack Obama had promised to go over every piece of legislation “line by line” and remove all earmarks, those costly treats that congressmen tack onto big bills to avoid scrutiny, and yet Barack’s Big Plan includes almost nine thousand earmarks totaling many billions of our dollars. Barack Obama’s promise to champion major reductions in the deficit was just a cynical hoax. During his very short tenure Mr. Obama has proposed spending more money than all of the money spent by all previous administrations combined.
America’s financial future is growing darker. In the words of the nonpartisan Tax Policy Center:
“In 2009, the federal deficit will be larger as a share of the economy than at any time since World War II. What is more troubling is that, under what we view as optimistic assumptions, the deficit is projected to average at lease $1 trillion per year for the 10 years after 2009, even if the economy returns to full employment and the stimulus package is allowed to expire in two years.”
All of Obama’s jabber about reducing the deficit to $533 billion by the end of his first term was just the flatulence of a political opportunist. As a boundless fountain of fresh spending proposals, this former “community organizer” has only succeeded in sending shock waves through the bond market. Obama has done so much damage that Hillary Clinton had to trot over to China to beg the communists to please not stop buying our treasury paper.
Rewarding Irresponsibility
Once upon a time anyone applying for a home loan was also asking for a thorough financial examination. A bank officer would ask to see tax returns and pay stubs; he might talk to the applicant’s neighbors or appear at the applicant’s place of employment – all in an effort to determine of the applicant was trustworthy. That firewall of skepticism and prudence has crumbled away. To be more accurate, the wall was pounded down by the battering ram of liberal utopianism run amok. The forces of liberalism deployed those towering siege machines, Freddie Mac and Fannie Mae, to weaken the defenses of experienced bankers. After that came the decline and fall of the American economy.
The bankers had been reduced to offering “statement loans,” so called because the applicant was not required to offer any evidence of his trustworthiness other than his stated answers to the banker’s questions. On the street, these are called “liar loans.”
After Federal Reserve Chairman Ben Bernanke likened every calculating mortgage-loan liar to a smoker who had accidentally set his bed on fire and after FDIC Chairman Sheila Bair blabbed that it would be “simply impractical” to exclude these liars from Obama’s taxpayer-funded housing bailout, it became clear to every jerk in the land that lying had its rewards. As the Associated Press put it, the President’s “assurance Tuesday night that only the deserving will get help rang hollow.”
Mortgage fraud blossomed during the housing bubble but it did not stop when the bubble burst. Mortgage fraud increased 45% in the second quarter of 2008, compared to a year earlier. The Treasury Department’s Financial Crimes Enforcement Network also reported an increase of fraud for the year that ended in June of ’08. Fraud is rampant and Obama’s big-bucks bailout will do nothing to turn the tide.
That said, may we reasonably assume that those mortgage applicants who did not lie to loan officers are all guiltless victims for whom we might feel charitable? Not by a long shot.
Many of these seemingly responsible borrowers put themselves underwater by trading their rising home equity for cash, in some cases several times, taking on more demanding mortgages each time. At the peak of the housing boom, Americans were pulling $300 billion out of their home equity each year, according to the Federal Reserve. Cash-out refinancing constituted one of every three mortgages since 2005. Mr. Rod Dubitsky of Credit Suisse has identified almost half of all sub-prime mortgages as cash-out refinancings.
To put it bluntly, these “homeowners” were gambling: they were spending their winnings from rising home prices on consumer goods, luxury vacations and remodeling. You name it; they bought it. Every time they did a refi they were accepting more demanding repayment schedules. Freddie Mac tells us candidly that most mortgage refinancing since 2004 has been for higher loan amounts. The borrowers were all betting that the housing market would just keep appreciating, which is not what history tells us will happen.
Barack Obama’s $300 billion Hope for Homeowners borrower bailout of 2008 was barely in motion when he announced yet another big-bucks spendfest for bad borrowers, at our expense. This one is more appealing to the mortgage cheats because it doesn’t require the recipients to certify that they were honest on their original mortgage applications. To make it more needlessly painful, Obama’s latest bailout scheme threatens every future honest mortgage applicant. The mortgage “cramdown” provision of the Obama plan would allow bankruptcy judges to reduce the amount the debtor owed – a move that will make lenders leery of future home buyers.
The cramdown provision would also threaten the value of mortgage-backed securities that are now held by troubled banks, pension funds, the Federal Reserve, Fannie and Freddie. In the long run, what hurts lenders will also hurt borrowers. It was the threat that judges might be allowed to whimsically rewrite mortgage contracts that caused bank stocks to fall when Obama’s plan was announced.
Obama’s plan instructs the Treasury to pump another $200 billion into the recently insolvent Fannie and Freddie so that they can buy more mortgages in the hope of keeping mortgage rates low. Just what these two damaged giants need: more dubious IOUs.
The moral vacuum at the heart of Obama’s plan is its dictatorial compulsion of some citizens to pay for the housing of others. Obama’s idea of affordable housing is forcing productive people to give up their earnings so that strangers can live in homes that those strangers cannot afford.
This provision of the Obama plan captures the stern essence of Barack Obama’s slave master mentality. He is using the whip lash of authoritarian taxation to benefit some folks at the expense of others. Obama would step on the backs of people who are already toiling under the crushing burden of meeting their own mortgage obligations, so that lying spendthrifts and illegal aliens could dodge the consequences of their own bad behavior.
Massa Obama “just knows” what’s best for everybody; he’s up in the Big House eating those juicy one-hundred-dollar-a-pound steaks and dreaming up lots more ways to spend your earnings where he knows your earnings will “do more good.”
“From each according to his ability, to each according to his need,” – that’s Massa Obama’s guiding creed.
Oops! Did I just quote Karl Marx?
Thomas Clough
Copyright 2009
March 9, 2009