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Ultimately, the piper must be paid

By Henry Lamb
web posted September 29, 2008

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, November 20, 1994.  No one noticed, or connected the dots to the emerging socialist, communitarian concept called "sustainable development. Grassroots organizations across the nation were deeply involved in preventing ratification of another U.N. treaty, the Convention on Biological Diversity which was also under consideration at the time.

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.

Both Fannie Mae and Freddie Mac were institutions that were neither purely socialist, nor purely free market – a blend that is best described as communitarian, in that they allowed private investors to buy and hold shares in the corporations, but were also guaranteed by the federal government.  That is, until recently, when the federal government took over both institutions.  Now, the federal government essentially owns all those properties – a result that is as socialist as had the government nationalized those properties by force.

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 that 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.

Barack Obama's incessant drumbeat about the failure of the economic policies of the last eight years is either gross ignorance or, more likely, political blame-shifting.  The cause of the current meltdown is clearly the Democrat's insistence upon giving federally-guaranteed mortgages to people who could not afford them. Even now, Democrats insist, not on the minimum government involvement possible, but on adding all sorts of give-away ornaments on the bailout Christmas tree.   Obama is also promising to take over the energy industry, the health industry, and to give tax credits and even refunds to some people with money he shamelessly takes from others.  This is redistribution of wealth - pure socialism.

McCain may be only marginally better, but any deterrent to the Democrat's determined transformation of America to unabashed socialism should be welcomed.  Despite the U.N.'s declaration to the contrary, no person has a "right" to housing.  If Democrats prevail and continue their pursuit of the U.N'.s goal of universal socialism, America can expect to experience the same total collapse experienced by the Soviet Union.

Ultimately, the piper must be paid. ESR

Henry Lamb is the executive vice president of the Environmental Conservation Organization (ECO), and chairman of Sovereignty International.

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