Common Sense University

            Once upon a time in America, homeownership was a goal and an accomplishment and therefore a privilege and not a right and entitlement! But that was once upon a time when a great deal of common sense and reality governed this country. If one wanted to buy a house, one had to have about twenty percent of the purchase price in cash and then show proof that the buyer’s mortgage payments were affordable. And the majority of people had to work very hard for many years and put money aside from each paycheck to reach that point in time. With homeownership came also a sense of great pride and achievement, a virtue that seems to be almost lost in today’s world. The norm for mortgages was a fixed rate interest loan of 80% of the home’s value that is to be repaid over thirty years.  If someone didn’t have 20% to put down on the home, they would be required to purchase (Private Mortgage Insurance) PMI too.  This insurance compensated for your lack of capital investment in your new property, so the loan would be financed.  Once your equity in the home totaled 80% or more, you could stop the PMI.

            But then the slippery slope to credit and lending started and mortgages with ‘balloon’ payment were introduced. Or a ten percent down payment was acceptable and a ninety percent mortgage was agreed to or a second mortgage for the ten percent was negotiated at a lower interest rate. And so it went. In addition, over many years, the social foundation in America changed dramatically with such ‘wonderful’ introductions as Affirmative Action and even more so, ‘Victimhood’, an avoidance of responsibility. Nobody seems to be responsible for their own action anymore.

            Enter Freddie Mac (Federal Home Mortgage Corporation) and Fannie Mae (Federal National Mortgage Association). While the latter was established in 1938 by President Franklin D. Roosevelt as part of his New Deal and to establish local banks with federal money to finance home mortgages in an attempt to raise levels of home ownership and the availability of affordable housing. Thirty years later, another Democrat President, Lyndon B. Johnson converted the two companies into Government Sponsored Enterprises (GSE’s) and they have operated as private enterprises and have been owned by shareholders, they are protected financially by the support of the Federal Government. These government protections include access to a line of credit through the U.S. Treasury, exemption from state and local income taxes and exemption from SEC (Securities and Exchange Commission) oversight. Both, Freddie Mac and Fannie Mae are the only two Fortune 500 companies that are not required to inform the public about any financial difficulties they may have. Their combined dept is estimated to be equal to nearly fifty percent of the national debt. In numbers, that is about five trillion dollars.  Origins of Freddie and Fannie.

            With no SEC oversight, it fell upon Congress to monitor these two companies; and in hindsight, Congress did a lousy job. When Republicans in general including the President as well as Fed Chairmen Alan Greenspan and Ben Bernanke asked for more oversight and regulations in light of some accounting scandals that became public knowledge in recent years, Democrats in Congress stopped their efforts repeatedly! They had an obvious motive: They wanted to protect prominent CEO’s of those companies who were Democrats and who had raided the companies and walked away with millions of dollars in salaries and bonuses. Case in point, Franklin Raines walked away with ninety million dollars during his six-year reign of Fannie Mae. The Democrats also wanted to continue the loose lending practices by Freddie and Fannie to continue in an effort to promote what we call ‘Social engineering’. When banks were pressured to provide mortgages to truly unqualified buyers – no down payment in cash – no way to make the mortgage payments – it was the beginning of the current crisis. The house of cards had to collapse eventually and now it has!

            So then, who is to blame? We know one thing for certain the American taxpayer will be burdened with the rescue. As we have witnessed, the U.S. Government has stepped in and taken on nearly a trillion dollars between the bailouts of AIG and others as well as the recently passed and signed “Rescue Plan” to allow the government to buy back bad loans and to encourage and stimulate the markets to lend money again on Wall Street, in other World financial markets and elsewhere. The Democrats in Congress have promised to investigate as to where blame for this mess can be assigned. Does anybody truly think that they will point the finger at themselves as long as they have President Bush to blame (even after he will be out of office)? They will not! So then, should we blame the people who signed for the loans knowing full well that they could not pay the mortgages back? Of course not, they were the ‘victims’ in this scandal, they were taken advantage of by greedy lenders and bankers. How about the lenders and bankers? Their defenses for these irresponsible lending practices will be that they were threatened by government agencies such as HUD (Urban Housing and Development), Freddie and Fannie and others to make these loans. How about real estate speculators and investors who bought houses on the cheep with low-adjustable loans and who renting these houses out and had the renters pay the mortgages? They walked away from their investments when interest rates increased and they could not get higher rents from their renters and that is how the overwhelming increase in foreclosures started and continued. But we cannot blame them, “they were trying to make a buck”.

            There is only one answer to the question whom to blame: It is ourselves! You and I, we the people of America let it happen. We the people allowed our elected officials to lead us onto this slippery slope of social engineering, equal opportunity for all, achieving the American dream and so on. Old values be damned, forget about common sense and individual responsibility. The intent is to share the dream with everybody. The only answer to this dilemma is to send Congress a very strong message: Do not vote for the incumbents this year! This might hurt some good ones but don’t worry about it, there are very few of them right now in the House of Representatives and the Senate. Let us all send a strong message and change Congress by voting for Non-Incumbents. They will recognize that they have two years (in the House) and six years (Senate) respectively to change things for the better of America and to get us back to the way things were once upon a time with such virtues as responsibility and personal accountability for actions taken.

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