Tuesday, October 7, 2008

Conservatism's Wrong Turn...

I’ve chronicled the role of a reckless Fannie Mae and Freddie Mac, a spendthrift Congress and liberals, Liberals, LIBERALS in the current credit crisis.

I’ve even acknowledged the role of some high-flying investors and CEOs who willingly profited off of CDS’s (Credit Default Swaps) and CMO’s (Collateralized Mortgage Obligations) they knew were “fiscal bombs,” but I haven’t (until now) acknowledged the role that some misguided and probably well-meaning Conservative principles have played in all this.

The “Ownership Society”

In the 1980s Jack Kemp came to the idea that homeowner's tend to value and take care of their own property better than renters do and that property owners are generally also, on the whole, better educated, more financially well-off and ultimately more politically Conservative is certainly TRUE.

What ISN'T true is that all or even ANY of that is due to some "magic of ownership."

The fact is that far MORE savvy, self-disciplined and goal-oriented people tend to own property, while few reckless and irresponsible people are generally either inclined or able to bear that burden.

What Jack Kemp didn’t seem to realize is that, Ownership DIDN'T make owners better people, BETTER PEOPLE gravitate to property ownership!

Kemp took the lesson that became the foundation of "the ownership society" and got it exactly backward.

The misguided Kemp vision of "creating millions more responsible, Conservative-oriented citizens via the magic of homeownership" led to many, MANY Conservatives supporting the creating of credit out of thin air (credit socialism) to, in effect, GIVE more reckless and irresponsible people a piece of that "ownership society," but you CAN'T give away what must be earned!

Reckless and irresponsible people, given the keys to homeownership on the cheap (via low, LOW "teaser rates") remain as reckless and irresponsible as "investors" who were given their positions and never told anything but how great they were.

Reckless and irresponsible people tend to stay reckless and irresponsible due to BOTH inertia (the gravity that tends to keep resting bodies at rest) and entropy (the law of breakdown and decay).

Jack Kemp's vision didn't factor in those two immutable forces...and that misguided vision has helped lead the way to what is one of the worst excesses of government and potentially one of the worst global fiscal calamities in over three-quarters of a century.

Kemp’s misguided philosophy is the foundation of what the Bush administration called “Compassionate Conservatism.” Back in January of 2004, in a bid to boost minority homeownership, President Bush, in Kemp-like tradition, asked Congress for authority to eliminate the down-payment requirement for Federal Housing Administration (FHA) loans.

At the time, while announcing the plan at a home builders show in Las Vegas, Federal Housing Commissioner John Weicher called the proposal "the most significant FHA initiative in more than a decade." The administration claimed that it could lead to 150,000 first-time owners annually, he said.

Nothing-down options had long been available in the private mortgage market, but, in general, they required the borrower to have pristine credit. Bush's proposed change was designed to extend the nothing-down option to borrowers with blemished credit – “subprime” borrowers.

That was classic Kempian “Compassionate Conservatism."

Sadly, that became part of a legacy of GSE’s (Government Sponsored Enterprises) like Fannie Mae and Freddie Mac, run amok.

In 2003 and again in 2005 G W Bush and John McCain sought to push through reforms that included an oversight organization for both Fannie and Freddie. There were never more than 6 votes in favor of those reforms among the 18 member U.S. Senate Committee on Banking, Housing and Urban Affairs and no more than 17 votes among the 39 member House Financial Services Committee.

While Rep. Barney Frank was Fannie Mae’s and Freddie Mac’s point-man in the House and Sen. Chris Dodd was their point-man in the Senate, Fannie’s and Freddie’s lobbying efforts and money were well spread around.

Moreover, the government’s guaranteeing all those subprime loans was popular with banks and mortgage lenders because it was so profitable and it was popular with Kempian Republicans who liked the idea of “the ownership society” creating more Conservatives.

Today, many in the media are working overtime to cast the current credit crisis as a failure as a failure of the free market. America doesn’t have a free market. It hasn’t since around 1912, when J. P. Morgan and Bernard Baruch ushered in the regulated market or the Corporatist economy.

This isn’t a failure of the non-existent free market. It is PRIMARILY a failure of government intervention...TOO much regulation and, all too often, TOXIC regulation on the part of government, and it was, sad to say, endorsed by BOTH Parties, though for entirely different reasons.

On the Liberal side, and this may be sad to say, but true, they supported more intervention for the same reasons they support MORE government spending and open borders - for NOT merely the WRONG reasons, but the most ignorant.

What may be far worse, or at least far more disastrous is the GOP's being complicit in much, if not all of this, and worse still, over some naive and misguided principles that many Conservatives have come to embrace.

The idea of embracing creating credit out of thin air, in order to “create more Conservatives,” is as foolish and misguided as embracing the idea of open borders and welcoming in millions of socially Conservative Mexicans in hopes of “creating more Liberal Democrats.”

Why do so many reasonably intelligent people embrace so many ridiculous ideas?

Whatever the reasons, we’re going to all wind up paying for it, probably in short order.

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