Saturday, September 27, 2008

Electing the Second Choice

By Alan Caruba

This is shaping up to be a very strange election.

Consider that both parties are, in effect, fronting candidates that are at best their second choice. The Democrats wanted to nominate Hillary Clinton and now have buyer’s remorse with Barack Obama.

The Republicans had a field of candidates that did not seem to please any of them. Remember the excitement when Fred Thompson got in the race? When John McCain emerged the winner of the primaries, the conservative base of the party put on mourning clothes.

The problem for Republicans is that President George W. Bush turned out to be more liberal than they could ever have imagined; never vetoing a single funding bill until late into his second term, pushing for the federalizing of the nation’s educational system, and ignoring the illegal aliens. His domestic agenda got a pass because he was at least aggressively chasing the Taliban and ridding the Middle East of Saddam Hussein.

Whoever is elected in November is going to inherit a nation in financial distress and the voters already know they will be handed a bill by the federal government as it struggles to restore trust in the banking and investment systems.

The mess, of course, is the result of its own machinations and Wall Street’s natural predatory instincts. Neither candidate looked comfortable at Thursday’s White House emergency meeting with the President, but then nobody else in the room looked happy.

The Friday night debate was uninspiring. If you had a preference when you tuned in, you surely did not change your mind. If you were still undecided, age and experience seemed to be McCain’s trump card while Obama remained as aloof as usual. There is too much of the academic, the professor, in Obama. McCain still loves a good fight.

The problem for both candidates and for Congress is that, when you’re running an empire called America there’s a point at which you realize it is just too damned big. McCain talks of reducing the size of government and he is right. Obama has plans to add to it with billions more in “social” programs about healthcare and education. He is very wrong.

The Romans found out about being too large around the time the Vandals and the Visigoths were at the gates. All roads led to Rome and facilitated its sacking. Let us hope we are not witnessing the sacking of the taxpayer although, at this point, it rather looks like that. Why we expect the people we elect to high office to be smarter than the rest of us remains a mystery.

The first half hour of the debate was about avoiding the financial catastrophe. Not once was the Federal Reserve mentioned. Its cheap money, easy credit policies are a big part of the present problem. Neither candidate actually suggested getting rid of Freddie Mac or Fannie Mae. Why remind people that their government is at the heart of the mess?

Foreign affairs was the scheduled topic and did occupy a fairly boring second half of the debate, but Americans tend not to be much interested in what is happening elsewhere unless it involves a war or threat of one. We have an increasingly short attention span even for wars in which we are involved.

Chosen by a system that needs a complete overhaul, neither candidate evokes a great deal of enthusiasm. The winner in November could well be just a caretaker until the financial system rights itself and that is not likely to be any time soon.


Unknown said...

I read a few articles one of which was from Rush Limbaugh stating that fannie mai, and freddie mac were established by FDR. Foor the purpose of loaning money to the poor.

I am not sure there loaning practices at the begginning but curently they have given greater and greater credit to the the poor.

The articles said that Bush Senior wanted to disband those institutioons back when he was in office. The democratically controled congress at the time saw greater value in keeping these lower class lenders open.

If such is true then the Democrats would be the ones with failed economic policies. Lending money to people with out forcing the neccissary down payments.

I was wondering how tue these articles were? Or maybe you could correct my understanding in this matter of Freddie mac and fannie mae?

Alan Caruba said...

I am sure if you Google enough, you will find the answers you're seeking. That's outside my area of expertise.

Anonymous said...

For interest to your last writer, Alan, below summarises the origins of GSE's

The Origins of Government Sponsored Enterprises.

To understand the situation, one must study the history of the Federal Home Loan Banks and the Federal National Mortgage Association or Fannie Mae (Freddie Mac's larger sibling). These institutions were products of the New Deal. The mission of the Federal Home Loan Banks, which were created in 1932, was to provide financial support to urban thrift and savings banks. In 1938, the government created Fannie Mae with the express purpose of funding "mortgage loans insured by . . . the Federal Housing Administration." All of this occurred during a time of upheaval in financial markets and were supposedly the remedy needed. Like all such government projects aimed at solving various crises, the institutions outlived their initial purpose and tended to change their focuses to continue operations. Accordingly, in 1968, Fannie Mae was chartered as a GSE and stock was sold to investors. At that time numerous large private mortgage companies purchased stock in the new firm. Likewise, Freddie Mac was chartered as a GSE in 1970. However, Freddie Mac did not become a public company until 1989.

Fannie Mae (FNMA or Federal National Mortgage Association), a government-sponsored enterprise (GSE), finances one of every five home loans in the United States. In 1938 this GSE was founded by the federal government with a mission to increase home ownership across the United States. It is subject to congressional oversight via the Office of Federal Housing Enterprise Oversight (OFHEO). Fannie Mae stock (FNM) is (was) actively traded on the New York Stock Exchange and is (was)part of the Standard & Poor's 500 Composite Stock Price Index.
Fannie Mae may be one of the most ill-fated welfare creations, ever, on the part of the United States government. In the beginning, Fannie Mae's impact was negligible, however, from the outset there were plans to swell Fannie's waistline by expanding her purchasing authority. At about the time the American soldiers were coming home from WWII, Fannie was enabled to purchase loans guaranteed by the Veterans Administration, in addition to the Federal Housing Administration-insured mortgages it was already purchasing. This creation and expansion of a secondary market for mortgages was a vital boost to the supply of lendable money in the United States.

Hope that clears a few points.
References thanks to Prof. Paul Cleveland, Birm. Al.
Karen De Coster, CPA and Eric Englund.

From Clive in Laoag City