It all started with the great society.

I keep reading how it was President Bush’s fault that we are in this mess, I also read how it was President Clinton that is to blame. Some trace it back to President Carter.

The blame for this mess really goes to our congress of 1966.

Here is how I got there.

When the Vietnam war was costing too much the president and the congress had a choice raise taxes or lose the war. Both choices were political suicide. Some idiot congressman came up with a brilliant plan to fight the war and give President Johnson the Great Society he wanted as he legacy.

It was so simple and easy that almost everyone signed on to it. Social Security had over a trillion dollars in the trust fund. Back then, there actually was a trust fund outside of the federal budget with our social security money in it. The idea as I said was simple. Take the money from the fund to pay for the Great Society and fund the war. The money would be paid back in time for it to be used when people needed it fifty years later. So the congress took the money and put in its place IOU’s the war was paid for, and there was enough left over to put more money in schools, and build roads and promote the arts for the masses. The problem was that the congress never paid it back. They just kept taking from the fund until the Vietnam War was over, and the great society sucked up the rest. Each year the congress was to put some of the general tax fund into the social security fund to repay the IOU. As with all liberal plans they never followed through on the promise to pay back social security the trillion dollars which in today’s money is about 8 trillion dollars.

Each year the congress found a reason not to repay the debt until the 1980’s when president Reagan was in office, he wanted to cut taxes to spur the economy, what did he know his degree was only in economics, he was an actor, he was old and did not know the real world. So the liberals suddenly remembered that social security was going to go broke somewhere around 1995 and it was all Mr. Reagan’s fault because he cut taxes. Well the tax cutting worked so well that the money poured into the treasury and social security would not go broke till around the year 2000, the congress still did not honor the IOU’s Mr. Clinton did nothing to help the economy because if he left it alone his presidency would not see a problem. Then he raised taxes to the point that people screamed and he said he raised them too much but never cut them.  You may be wondering at this point how this affects the mortgage problem of today.

Well Sherman lets get of into the wayback machine and I will show you.

Here in the late 70’s president Carter wanted to make home ownership more affordable. He and the congress relaxed the lending rules. The banks had to comply or risk being shut down as racist. A very bright businessman came up with a plan to follow the rules of the congress and still restrain the housing market restricting it to people that had the ability to pay. It was called a balloon mortgage. You had low payments for five to ten years and then you owed a balloon payment of anywhere between eleven thousand and twenty thousand dollars to catch up. The idea was for the new homeowner to save money a little at a time so at the end of five to ten years you had the payment on the due date. The majority of people did not save their money and there were foreclosures all over the place. This was blamed on Mr. Reagan.

Also in the late 70’s the congress in order to make the S&L’s happy they passed a law that said that S&L’s could loan 20% of their assets while conventional banks could only loan 10%. This was done to give the Savings and Loan’s a chance to compete with the big banks.  When Mr. Reagan took office, the Congress repealed that law and gave the S&L’s 12 months to bring their loans back to only 10% of assets. The problem was that the S&L’s loaned the money out on 30-year mortgages. In order to comply with the Congress they would have to foreclose on homes and farms across the nation or have banking regulators take over their institutions. Remember Farm AID? Remember how it was all blamed on the greedy people that Mr. Reagan helped with a tax cut.

Mr. Bush 41 did little to help or hurt so in my mind he was neutral. Mr. Clinton believed that the key to low income people becoming homeowners was to further relax the lending standard. Through Freddy and Fanny and the congress they made it happen. The banks replied with if you are going to make me loan money for a house to someone that does not qualify then we need to find a way to make it affordable. Dust off the balloon mortgage Mable. Only this time instead of calling it a balloon mortgage we will call it an ARM Adjustable Rate Mortgage. Here is how this works. You don’t have the income to buy your house, you saved no money for a down payment, I will loan you the money with the use of an ARM you can afford 800 a month, in three years you will be making more money so you will be able to afford to pay more money so your ARM will start in three years and you pay what the going rate is at the time it could go up or it could go down. In those three years, you need to pay off all your credit cards, and your car. This way you can afford the interest rate hike.

Like the balloon payment plan people did not save the money, they ran up their credit cards, and bought new cars to go along with the new house.

The economy hit hard times just as Mr. Clinton was leaving office. The tax hike he gave slowed down the market and people were losing jobs. To fix that minor problem the congress imposed tougher regulations on business and the higher taxes meant that businesses were not expanding or growing. In order for a business to grow, they need people spending money. Higher taxes killed that.

The cure for this problem is to let the banks, insurance industry, and the mortgages fail. It is far cheaper to the American public to come in and take care of the few failures than to take on larger and more expensive failures created by government. If the system is allowed to correct itself banks will buy up the weaker ones and spread the risk. If government steps in as it is threatening to do then the smart people will wait and let the taxpayer pay for their mistakes. The banks will grab money from the government to cover losses. The government is not in the business of business it is in the business of government. There should have been a clause of separation of business and state.

It started with the former president changing the rules of banking then the next former president relaxing them further under threat of shutting down the banking system. The two government do gooders may have meant well but the end result is the same with every liberal plan. The laws were written by people that had no idea how the system works. Business has built in checks and balances. Each one is needed for the system to work properly. What the government did was add more checks on one side while providing no balance on the other side. This is why we had the social security mess of the 60’s the mortgage crisis in the 70’s the stock market bubble in the 80’s the bankruptcies of the 90’s and the mortgage problem now.  We keep trying to put off the problem and it only gets worse. It is not the job of congress to make life easy for anyone but to buy votes they try to do it anyway. This time we let the system correct its self and we will have a big mess that will last a few years, or we allow congress to screw it up more and we have a huge mess that will last decades. I would be happier and feel safer if the congress would stay out of business for a decade or so.

Yes, people will get hurt, some people that did not do anything wrong will get hurt. But that is the cost of letting the government work outside the constitution. We need to go back to basics, provide national security, protect people from crooks, and ensure fair commerce. Nothing else is important as far as the federal government is concerned. The states and local governments pick up the slack and let the locals decide what is best for their state, county, cities and towns.