Government Control Of Failing Banks Inches The U.S. Closer To Becoming A Socialist State

Fannie Mae and Freddie Mac, along with a boat-load of foolish borrowers, failed to heed the warnings that the huge housing bubble Americans were experiencing through the nineties and early millennium would come to an end. The borrowers, fueled by the greedy hopes of selling their houses for a profit in a couple years, bought homes they could not afford with loans that were destined to increase in cost should they not unload the home in time. The banks failed to raise enough cash to reassure the investment community they would be able to survive a severe downturn in United States home prices.

Freddie Mac and Fannie Mae, in order to encourage more buying, and in an attempt to push their profit margin to the limits, relaxed their standards in order to buy more loans. Wall Street banks also lowered their standards in the hopes of cashing in as well. Greed and arrogance carried the wave for a short time, but like with anything, what goes up must go down.

A glimmer of hope popped its head up last Spring when builders began building the final build-outs of projects, and a number of them sold rapidly. Industry experts hoped that the industry would see these few sales as a move back in the right direction, and held their breath for a moment to see if a new bubble would begin to expand. However, cautious in this new housing environment, the builders remained happy to only work on the final houses of their last projects so that they could simply close their books on the projects by the year's end. No new projects emerged, as some had hoped, and the bubble deflated before it had a chance to grow.

Now, the banking industry is in a crisis. As usual, there are those faint little calls by some Americans screaming, "The government has to do something about it!" And so, as some would expect from a President with Globalist leanings, and a Congress with the hopes of America becoming a Socialist Nation, the government has announced that it will take over the two mortgage giants, Freddie Mac and Fannie Mae.

It is being called a monumental move designed to protect the mortgage market from the failure of the two companies. The intervention will cost taxpayers billions, and the news of this governmental takeover of the banks follows news that more than 4 million American homeowners with a mortgage, a record 9 percent, were either behind in their payments, or in the process of foreclosure.

The two mortgage giants lost $3.1 billion from April to June, half of that coming from risky loans with ballooning monthly rises. While the companies claim to have enough resources to withstand the losses, the belief is that at the current rate of loss their financial cushions are not enough, and the companies will eventually find themselves in a position of not being able to fund their operations.

The result of this "rescue package" is the exposure of taxpayers to billions of dollars of potential losses, a wipe-out of common stockholders, and it could end up being costly to scores of investment, banking, and insurance companies.

Fannie Mae was created in 1938 in an attempt to increase home ownership across the United States, and to enable Congressional Oversight into the industry. The sale of the idea to the American Public was that everyone had a "right" to home ownership, and the government was going to make sure it happened.

Thanks to Franklin Delano Roosevelt's Socialist Programs of the New Deal, the notion that it was an American's "right" to own a home by means of government subsidies was so firmly entrenched in the American mindset, Fannie Mae not only grew, but in 1968, as a part of Lyndon Johnson's societal engineering agenda, Fannie was converted into a private corporation and the ability to guarantee government-issued mortgages was switched from Fannie Mae to the federal government's newest creation, Ginnie Mae (Government National Mortgage Association). This meant that Fannie would begin to operate with private capital on a self-sustaining basis.

In 1970, Fannie Mae was authorized to buy conventional mortgages, and by the 1980s it began to purchase second mortgages and adjustable-rate mortgages. In the 80's it also commenced its mortgage-backed securities scheme.

Between Fannie Mae and Freddie Mac (another GSE), the largest source of cash for home buying in the United States was in existence, and they accounted for almost 50% of all mortgage bonds sold through April of 2007. Since the beginning of 2006, however, over fifty mortgage companies discontinued operations, claimed bankruptcy, or sought a buyer. Fannie Mae, however, continued to flourish until recent months. Since the end of March 2007, Fannie Mae's stock price increased by almost 20% whereas the S&P 500 Index had risen only 8.1% by July of that year.

Fannie Mae was a New Deal innovation, created by and for the federal government. This gives it different abilities and freedoms than your usual corporations, which are generally chartered by the states. The sole purpose of this federally chartered, quasi-private entity was to directly intervene in the housing market while avoiding a more conspicuous regulatory apparatus governed by rules. This allowed the government to advance and steer the government's progressive entitlement programs put in place by the New Deal without anyone ever really taking notice. Meanwhile, Fannie Mae expanded into mortgage insurance, sub-prime mortgages, and non-mortgage investments, exposing taxpayers to a massive risk of default or bankruptcy.

The Founding Fathers wrote the U.S. Constitution to limit the powers of the Federal Government, and they were specifically suspicious of judges and banks. The first step toward the centralization of banking through the Federal Reserve Act which was signed into law by Woodrow Wilson, a Democrat. The New Deal Programs by FDR, and the expansion of entitlement programs by Lyndon B. Johnson, were strictly against what the Founding Fathers intended, and these Democratic Party programs are now falling apart because of their unconstitutional characteristics.

As the government now takes another step towards centralizing control over banks, and further expanding entitlement programs, the consequences for poor decisions by individuals are not being paid. Now, with this program to bailout mortgages and save the banks, the taxpayers that were not driven by greed and arrogance are being punished.

Government manipulation is the cause of the problems we see rising in the economy and banking system. And government manipulation, and control, is going to exacerbate the problem. As painful as it may seem, to straighten out this mess the banks need to collapse, the home owners who are currently in foreclosure need to lose their homes and move into more affordable accomodations like apartments, and we need to all buckle down, and get through this together, without government intervention.

If we don't bear the burdens of our mistakes as individuals, before the next dozen years are finished, we will be steamrolling in the direction of socialism, the "privilege" of home ownership will be gone, and it will take a revolution to turn us around to head back in the direction of liberty, and the American Way.

by Douglas V. Gibbs