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Trust Democrats With The Economy?

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By JOHN REINIERS, More Than Words

Hernando Today

Published: September 30, 2008

This will take awhile to set up: It's pretty sad when that loose cannon, Iranian President Mahmoud Ahmadinejad, while in New York to address the United Nations, tells the world, "The American empire ... is reaching the end of its road ... The world economy can no longer tolerate the budgetary deficit and the financial pressures occurring from markets here in the United States."
You know what? I'm embarrassed to say I agree with him. We have created a global financial crisis that affected financial institutions worldwide. The old adage is still true: The United States sneezes and the whole world catches a cold. (And we got terminal pneumonia in the process.)
The demise of Fannie Mae and Freddie Mac started when the Clinton administration unveiled a program for those receiving HUD rental assistance vouchers. Under this program they allowed these vouchers to be used to purchase homes. As Andrew Cuomo said, "Under President Clinton's leadership ... we can tell 1.4 million families you don't have to be a renter forever. You can be an owner and we're here to help you do it." This was just the beginning. (A noble Democratic socialist idea — everyone owns a home — no qualifying.)
To make an incredibly complex story shorter, digest these numbers just to put the enormity of this monster in perspective: The total debt/liabilities of Fannie and Freddie are exactly $4,934.4 billion, or rounded off — $5 trillion. That number is slightly less than the total publicly held debt of the U.S. Government! If that doesn't grab you — these two GSE's (government sponsored enterprises — whose debt is implicitly backed by the U.S. government) represent more default risk than all other U.S. Corporations combined. Wow!
On Sept. 11, 2003, the New York Times ran a piece about President George Bush proposing "the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago." What was it? An agency within the Treasury Department to supervise Fannie Mae and Freddie Mac. The evil George Bush proposed a fix that would have avoided this crisis.
Alan Greenspan in 2004, then chairman of the Federal Reserve, in testimony before Congress said that GSE's "need a regulator with authority on a par with banking regulators, with a free hand ... for placing a GSE in receivership ... Without restrictions on the size of GSE balance sheets, we risk our ability to preserve ... financial markets in the United States ..." In 2005 Greenspan, in testifying before the Senate said, "If we fail to strengthen GSE regulation, we increase the possibility of insolvency and crisis ..."
None of this testimony mattered. Fannie and Freddie finally collapsed, which resulted in a U.S. Treasury takeover, passing on to taxpayers the contingent liability for failures in their loan portfolio. In 2005 the Senate Banking Committee, then under Republican control, introduced a strong reform bill that got no support from the Democrats — endorsed by John McCain — saying that Fannie and Freddie's reporting of profits were "illusions deliberately and systematically created" by senior management, which resulted in a $10.6 billion accounting scandal. The Enron-like accounting manipulation was designed to boost earnings to a level that justified massive executive bonuses. If the Democrats would have let this reform bill come to a vote, the scale of the financial meltdown would have been manageable then.
But this is now.
The man behind this tragedy was Franklin Raines, an Obama economic adviser and former Clinton budget director, who I believe is still under FBI investigation. Two other Democrats who served as Fannie Mae executives and who earned multi-millions of dollars, and also with close ties to Obama, are James Johnson and Jamie Gorelick, former Clinton deputy attorney general. (The rest of the creative crooks on Wall Street — the Harvard MBA's and the like — simply saw a good thing and parlayed this scheme into a financial system meltdown. That's another story.)
A review of Federal Election Commission records reveals that Obama is the second largest recipient of Fannie and Freddie campaign contributions, behind Sen. Chris Dodd, D-Conn., the powerful chairman of the Senate banking committee.
Where is the justice in all this? McCain, not Obama, is dropping in the polls. Polling indicates that Democrats are trusted more than Republicans to manage our economy. Yet they resisted any reform of their program, which has created more debt/liabilities than the total publicly held debt of the United States government and is the cause of a global financial crisis! (This makes the cost of deposing Saddam Hussein look like chicken feed.)
Remember when the Democrats took control of Congress, they pledged to cut the deficit, restore confidence in America, abandon Iraq, eliminate "ear marks," bring transparency to Congress, reign in lobbyists, etc. Instead we have a financial market meltdown that was avoidable, rising food and gas prices, oil over $100 a barrel, declining housing prices and a Congress that won't do anything. Why? They want to make sure that America's confidence level keeps sinking until after the election — which they will win. Just blame all the financial turmoil on McCain and the Republicans.
Written in 1923, Adolf Hitler said something profoundly simple in "Mein Kampf:" "The vast masses of a nation are in the depths of their hearts more easily deceived than they are consciously and intentionally bad. The primitive simplicity of their minds renders them a more easy prey to a big lie than a small one, for they themselves often tell little lies but would be ashamed to tell big ones."
Not the Democrats. Trust them with the economy.

John Reiniers, a regular columnist for Hernando Today, lives in Spring Hill.

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