The Democrat, liberal, media narrative in regard to the financial crisis goes something like this. The Republicans recklessly let the financial institutions run without oversight or regulations and that brought on the financial crisis. The only trouble with this narrative is that it is 180 degrees opposite of the truth. The same folks have a narrative in regard to foreign policy that is equally false. It runs like this: As a neo-colonist nation, the United States of America raped and plundered the natural resources of foreign nations and unfairly got prosperous on the back of the poor and underprivileged. The real story is set forth below…
1977—The roots of the economic crisis go back to President Jimmy Carter. His administration proposed and a strong Democratic majority in Congress passed the Community Reinvestment Act (CRA) whose stated goal was to increase home ownership among the poor. The premise (now proven false) was that the poor could not get loans to purchase homes from marketplace governed institutions—banks, Savings & Loans, Credit Unions, etc. The liberal narrative was that these institutions were unfairly denying loans to people because of racism. Later studies proved this to be untrue, but the stigma of racism was feared to be so damaging that many of these banking institutions went along with the scheme. The fact is that anyone in business or any lending institution only looks at the soundness of the investment. There is only one color they are interested in—green. But liberals, who have no understanding of or faith in the free market, decided that government should intervene. Initially, the act was not strong enough to compel lending institutions to make loans to individuals who had no capacity to repay such loans.
1999—Bill Clinton muscled up the CRA and bragged about it. He pressured Fannie Mae to lower "the credit requirements on loans that it will purchase from banks and other lenders." With this step, President Clinton laid the foundation of the financial crisis. It did not go unnoticed. The New York Times warned…
"In moving, even tentatively, into this new area of [subprime] 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."
With this one step, Bill Clinton put all risk directly on the backs of the American taxpayer. Fannie Mae was created in 1938 under the Roosevelt Administration and Freddie Mac was started in 1970 under the Nixon Administration. Both were created under the false premise that the marketplace is not fair and therefore government intervention is necessary. Of course, the exact opposite is true. All government intervention into the marketplace distorts and corrupts the economic process. Government created financial entities are financially unsustainable and subject to exploitation by politicians and bureaucrats who do not answer to the financial realities of the marketplace, but only to other bureaucrats and politicians.
2000—George W. Bush was elected president and although he was a profligate spender in the vein of Nelson Rockefeller, he officially advised Congress on three separate occasions that Fannie Mae and Freddie Mac were on the verge of a financial implosion. However, when his White House warned of "systemic risk for our financial system" unless the mortgage giants were curbed, Congressman Barney Frank asserted that the administration was more concerned about financial safety than about housing.
2003—the Republicans in Congress introduced legislation to rein in Fannie Mae and Freddie Mac. Had this legislation passed it is likely the financial crisis could have been avoided, but when this bill was introduced it ran into a Democrat opposition. Democrats like Barney Frank and Senator Chris Dodd totally dismissed the idea that there could be any problems whatsoever with the financial stability of Fannie Mae and Freddie Mac.
Ranking Democrat on the Financial Services Committee, Barney Frank responded…
"I want to begin by saying …I do not think we are facing any kind of a crisis. That is, in my view, the two government sponsored enterprises we are talking about here, Fannie Mae and Freddie Mac, are not in a crisis. I do not think at this point [think] there is a problem with a threat to the Treasury…"
"The more people, in my judgment, exaggerate a threat of safety and soundness, the more people conjure up the possibility of serious financial losses to the Treasury, which I do not see. I think we see entities that are fundamentally sound financially and withstand some of the disastrous scenarios. And even if there were a problem, the Federal Government doesn't bail them out. But the more pressure there is there, then the less I think we see in terms of affordable housing."
What Representative Frank did not say was that he and other members of Congress were getting campaign money, financial benefits for themselves, jobs for friends, and other perks. The chief offender was Freddie Mac as is clearly documented in the New York Times bestselling book, Reckless Endangerment, written by Gretchen Morgenson and Joshua Rosner. Morgenson, a Pulitzer Prize winning writer and a financial columnist at the New York Times, and Rosner, a recognized expert on housing finance, detail the political and financial corruption at Freddie Mac that led to the financial collapse of that institution. No one should be surprised at the corruption at Freddie Mac—corruption, bribery, pay-to-play are inherent in government institutions that are out of the public view and that do not have to answer to the demands of competition in the free market.
As Freddie Mac encouraged lending institutions to make loans to individuals that were not justified on the basis of normal risk evaluation. The executives at Freddie Mac and at the lending institutions made millions of dollars until the financial bubble burst. There was no shortage of greed on either side of the bargain. Without Fannie Mae and Freddie Mac and the Community Reinvestment Act, and irresponsible politicians like Barney Frank, the financial crisis would never have happened. No lending institution is going to make loans to individuals or companies which have a doubtful ability to repay such a loan. When your money is on the line, you are careful in lending it out. It is only when government intervenes and guarantees repayment that such foolish and dangerous loans are made.
It is not the free market that was responsible for the financial meltdown, it was government intervention into the marketplace knowingly guaranteeing bad loans that pushed the United States of America to the brink of financial collapse. The solution is not Dodd-Frank legislation that gives the Government more control over lending institutions. The solution is to get government out of the marketplace so that such disastrous financial decisions and fraud cannot exist in the first place.
Today the Middle East is blowing up before our eyes. An American Ambassador has been killed, US property has been destroyed, and radical Islam has successfully taken over once stable governments. President Obama said the problem with Arabic anger toward the US was caused by George Bush. Perhaps he remembered the words of his pastor, Jeremiah Wright, who said of the 9-11 attack, "America's chickens have come home to roost." It was America's fault, not the fault of bad people in the world.
On June 4, 2009, President Obama traveled to Cairo, Egypt and apologized to the Arab world for the actions of the United States. He said…
"We meet at a time of tension between the United States and Muslims around the world – tension rooted in historical forces that go beyond any current policy debate. The relationship between Islam and the West includes centuries of co-existence and cooperation, but also conflict and religious wars. More recently, tension has been fed by colonialism that denied rights and opportunities to many Muslims, and a Cold War in which Muslim-majority countries were too often treated as proxies without regard to their own aspirations. Moreover, the sweeping change brought by modernity and globalization led many Muslims to view the West as hostile to the traditions of Islam."
In Cairo our President set forth a policy of weakness and appeasement that strengthened the hand of the radicals. He condemns and apologizes for minor American excesses, while ignoring the violence and hatred that causes an American Ambassador to be killed. When pro freedom demonstrators pushed hard for freedom in Iran, risking their lives, our President was silent, saying not a word for fear that he would offend Iranian dictator Mahmoud Ahmadinejad. In Russia he "hit the reset button," reducing our nuclear force from 1,500 to 350, and promising that he will do more after being re-elected. He denied Poland anti-missile missiles for fear of offending Russian dictator Vladimir Putin. He set forth a date for leaving Afghanistan without setting forth any objectives to be met prior to leaving. His foreign policy is based on weakness, vacillation, apology and appeasement.
The reason the Middle East is in a state of conflict today is not because of some movie, it is because the radicals there have gotten Obama's message—we will do nothing, the field is yours, do whatever you want. Weakness, vacillation and appeasement always lead to one thing—war. When Britain did not stand up to Hitler, but instead made a deal to give away Poland, Prime Minister Neville Chamberlain promised "Peace in our time." What was actually inevitable was war in our time, a war that killed millions of people, both combatants and noncombatants.
But Obama did not originate the crisis in the Middle East, his ideological twin, President Jimmy Carter deserves that distinction. Before Jimmy Carter, America had a strong ally in the Middle East besides Israel—it was Iran. The government of the Shah of Iran was powered by military might supplied by the US. Iran was stable and powerful, but no one would argue that Iran was free. The reality is that Islam is both a religion and a form of government. It is a theocracy and a theocratic form of government that is incompatible with democracy. They can never coexist. That's why from America's point of view the best we can hope for in the Middle East is a government that is friendly to the United States. There will be no free and prosperous governments friendly to the US as long as the citizens are committed to a theocracy. Only a secular government can have some form of limited freedom. The idea of nation building pursued by President Bush, though commendable, is a fool's errand in the Middle East. As long as the vast majority of the population are committed to theocracy, there is no room for freedom. When Jimmy Carter withdrew his support for the Shah, that nation collapsed and the entire Middle East was destabilized. The result is what we see today, encouraged and exacerbated by the feckless policies of the Obama Administration.
And while we are at it, let's not leave out what President Carter's policies did to Latin America. In Nicaragua, Jimmy Carter set his sights on deposing strong man Anastasio Somoza, a strong American ally. President Carter not only succeeded in getting rid of Somoza, he also succeeded in destabilizing the entire region and making it possible for Communist dictator Daniel Ortega to come to power. In both the Middle East and in South America unrealistic, soft-headed and weak policies traded a pro American strongman for an anti-American dictator.
President Obama has eagerly pursued those policies, seeing the United States as the problem, not dictators like Hugo Chavez, who he addressed as "mi amigo." If given four more years, there is no doubt that his encouragement of dictatorships in Latin America will only make the situation worse for the US.
The Carter to Obama record is clear on both economic and foreign policy. It has been a dismal and dangerous failure. Through misguided government intervention into the free market, the Democrats caused the current financial crisis. And through apology, appeasement and weakness, the world has been made a much more dangerous place by President Obama. Standing firmly on the shoulder of another failed President, Jimmy Carter, and pursuing similarly failed policies, the Democrats have led the nation into an economic morass and have endangered the national security of the United States.