WHY DID IT HAPPEN?
Jimmy Carter built the bomb, Bill Clinton detonated it, and Congressmen Barney Frank, Chris Dodd and Charles Schumer tried to deny its existence and thus delayed rescue attempts that could have prevented much of the damage. Barrack Obama who either doesn’t understand or doesn’t care, is promoting a trillion dollar spending plan that would undermine any attempt to resurrect our economy.
In 1977 newly elected President Jimmy Carter, along with an overwhelming Democratic majority in both the House and the Senate, proceeded to throw the economic checks and balances of America’s mortgage industry out of the window. The Community Reinvestment Act replaced the time tested requirements of home buyers having to document credit worthiness, make a down payment and be employed, with merely being able to breathe. Now anyone would be able to borrow large sums of money to purchase a house – whether they could afford it or not.
Because of this and other poor government decisions, the Savings and Loan collapse in the late 1980’s and the early 1990’s, resulted in a $160 billion bailout – funded by the American taxpayer. Having learned virtually nothing from this expensive learning opportunity, the Clinton administration decided to expand on the prior errors - and GO BIG! He knew that a large infusion of unqualified new home buyers, who had a wallet full of easy-to-get credit cards, would also be buying appliances, furniture, and other amenities for their new house. This would certainly fire up the economy – for awhile – until reality finally took over. The plan of course was that reality would not arrive until Bill Clinton had left the White House. Sorry George!
In order to pull off this clever but demented plan, Clinton would have to get the federal government to make two major moves. First, the risk of a mortgage default had to be moved away from the original lenders, so that they would agree to make a large number of these essentially fraudulent loans. Hello Fannie Mae and Freddie Mac (and the American taxpayer), as well as a batch of new financial instruments that allowed lenders to sell their mortgages (and the risk) to some sucker who assumed that there was at least a little common sense being used to qualify the new army of borrowers! Unfortunately however, Clintonomics contained no element of common sense.
Along with Fannie and Freddie, who are quasi-governmental agencies, a new – but unregulated and unsupervised – $60 trillion mortgage buying and trading industry grew and began to feed on the mortgage industry like vultures on road kill. To make this possible and to provide the political cover, Clintonomics called for and obtained the repeal of the Glass-Steagall Act of 1933. This consumer protection act was created after the Great Depression. It required the separation of commercial banks, investment banks, securities firms and insurance companies. For six decades, this restriction of the various industries helped to avoid the kinds of conflict of interest that have recently undermined the very foundation of our financial institutions.
Second, Clintonomics required that Fannie and Freddie invest up to half of their funds into the phony baloney, “subprime” worthless blocks of mortgages. In order for Clintonomics to continue running this high stakes Ponzi scheme, a continuous flow of new money and new suckers were required. The only way to accomplish that was to force Freddie and Fannie, (who guaranteed these phony loans with taxpayer money), to keep the charade going. As former Fannie Mae Chairman, Franklin Raines said, he was “under increasing pressure from the Clinton administration to expand mortgage loans among low and moderate-income people.”
When the real estate market experienced a pull back, the game was over. People who had no money in the deal simply refused to make payments on millions of these phony loans. The mainstream media’s former love affair with the Clintons had precluded any serious discussion about or scrutiny of the fancy financial footwork of the Clinton administration. However, Bill Clinton’s recent preemptive attack and assignment of blame against the Democratic Congress for the current crisis, highlights his concern that the media’s current infatuation with Obama will no longer allow the real truth to be suppressed any longer.
CLINTONOMICS FIRST RECESSION
Not content to merely sow the seeds for the current financial meltdown, the Clintonomics playbook also created the 2000-2002 recession. After Bill Gates inspired the tech boom of the late 1990’s, unexpectedly federal tax revenues spiked upward. Bill Clinton was as surprised as everyone else. The first year of the new monstrous tax revenues, which were due to the taxes produced by the unforeseen prosperity, the Clinton administration had projected a $200 billion deficit! Merry Christmas Bill.
This however, is where it all began to fall apart. To his credit, Bill Clinton was dedicated to reducing or eliminating the federal deficit. Unfortunately, he and his administration were like little kids who could not stop eating candy. They did not understand that moderation is important. The federal deficits had been accumulating for over 30 years. Changing that formula in one fell swoop was akin to attempting to jump across the Grand Canyon, instead of walking the entire one day journey.
From the second quarter of 1999 to the second quarter of 2000, federal tax revenue rose 11.4% while personal income only grew by half as much (5.7%). The net effect was that the federal government revenues sucked all of the oxygen out of the economy. A tax cut at that point was called for and it would have probably avoided the three-year recession. Income tax rates were still high because George Bush I (Read my lips – no new taxes), had in a “spirit of bi-partisanship” joined forces with the Democrats and raised our taxes. Those high rates were still in effect when the tech boom arrived.
One full year before George W. Bush even took office the stock market began to plunge. On January 14, 2000, the Dow Jones hit a high and then spiraled downward for three years. Not until George W. Bush passed a huge tax reduction did the economy respond. This is the tax cut that should have been passed in 1999!
The economy can only carry so much in tax weight. When the tipping point is reached recessions ensue. While that is not the only cause – (Clintonomics caused this recession by pumping who knows how many billions of dollars of phony loans into our economy) – it is a rule that can be counted on and must be obeyed. Would someone please explain that to Obama!
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