A ma­jor test of Amer­i­cans’ char­ac­ter

The Washington Times Weekly - - Commentary - Pat Buchanan

As the U.S. fi­nan­cial cri­sis broad­ens and deepens, wip­ing out the wealth and sav­ings of tens of mil­lions, de­stroy­ing hopes and dreams, it is hard not to see in all of this his­tory’s ver­dict upon this gen­er­a­tion.

We have been weighed in the bal­ance and found want­ing.

For how did this be­fall us, save through de­ci­sions that brushed aside lessons that his­tory and ex­pe­ri­ence had taught our fathers?

It all be­gan with the cor­rup­tion called sub-prime mortgages.

The mo­ti­va­tion was not wicked. Democrats wanted to raise home own­er­ship among African-Amer­i­cans from 50 per­cent to the 75 per­cent of white folks. Rove Repub­li­cans wanted to do the same for His­pan­ics.

Banks were morally pres­sured by politi­cians into mak­ing home loans to folks who could not re­motely qual­ify un­der stan­dards set by decades of ex­pe­ri­ence with mort­gage de­faults.

Made by the mil­lions, th­ese loans were sold in vast quan­ti­ties to Fan­nie Mae and Fred­die Mac. There they were pack­aged, con­verted into mort­gage-backed se­cu­ri­ties and sold to the big banks. The banks put scores of bil­lions of dol­lars worth on their books and sold the rest to for­eign banks anx­ious to ac­quire Triple-A se­cu­ri­ties, backed by real es­tate in Amer­ica’s ever-boom­ing hous­ing mar­ket. Com­puter whizzes de­vised ex­otic in­stru­ments — de­riv­a­tives, which could soar in value, mak­ing in­stant mul­ti­mil­lion­aires, but also plum­met, based on rises and dips in the un­der­ly­ing value of the pa­per.

Came now young ge­niuses at AIG to in­sure the banks against cat­a­strophic losses, should the U.S. hous­ing mar­ket crash. As the risk was mi­nus­cule, pre­mi­ums were tiny. Pay­outs, how­ever, should it come to that, were be­yond AIG’s ca­pac­ity.

In AIG’s Fi­nan­cial Prod­ucts divi­sion, based in Con­necti­cut and Lon­don, braini­acs were cre­at­ing other ex­otic in­stru­ments, such as credit de­fault swaps to guar­an­tee against losses and in­sure prof­its. To keep th­ese wun­derkinds at AIG, they were promised mil­lion-dol­lar re­ten­tion bonuses. Who kept the game go­ing? The Fed­eral Re­serve, by keep­ing in­ter­est rates low and money gush­ing into the econ­omy, cre­ated the bub­ble that saw hous­ing prices rise an­nu­ally at 10, 15 and 20 per­cent. As the econ­omy grew, how­ever, the Fed be­gan to tighten, to raise in­ter­est rates. Mort­gage terms be­came tougher. Hous­ing prices sta­bi­lized. Home­own­ers with sub-prime mortgages now found they had to start pay­ing down prin­ci­pal. Peo­ple los­ing jobs be­gan to walk away from their houses.

Be­lat­edly, folks awoke to the re­al­ity that hous­ing prices could go south as well as north, and all that pa­per spread all over the world was over­val­ued, and a good bit of it might be worth­less.

And, so, the crash came and the panic en­sued.

Who is to blame for the dis­as­ter that has be­fallen us? Their name is le­gion. There are the politi­cians who bul­lied banks into mak­ing loans the banks knew were bad to be­gin with and would never have made without threats or the prom­ise of po­lit­i­cal fa­vors.

There is that den of thieves at Fan­nie and Fred­die who mas­saged the politi­cians with cam­paign con­tri­bu­tions and walked away from the wreck­age with tens of mil­lions in salaries and bonuses.

There are the idiot bankers who bought up se­cu­ri­ties backed by sub-prime mortgages and were too in­do­lent to in­spect the rot­ten pa­per on their books. There are the rat­ings agen­cies, like Moody’s and Stan­dard & Poor’s, who gazed at the pa­per and de­clared it to be Grade A prime.

In short, this gen­er­a­tion of po­lit­i­cal and fi­nan­cial elites has proven it­self un­fit to gov­ern a great na­tion. What we have is a sys­tem fail­ure that is rooted in a so­ci­etal fail­ure. Be­hind our dis­as­ter lie the greed, stu­pid­ity and in­com­pe­tence of the lead­er­ship of a gen­er­a­tion.

Does Dr. Obama have the cure for the sickness that ails the repub­lic? He is go­ing to bor­row and spend tril­lions more to bring back the good old days, though it was the good old days that brought us to the edge of the abyss into which we have fallen. Then he is go­ing to spend new tril­lions to give us ben­e­fits we do not now have, though the na­tional debt is surg­ing to 100 per­cent of the Gross Na­tional Prod­uct, and may reach there by 2011.

Is Pres­i­dent Obama will­ing to speak hard truths?

Is he will­ing to say that home own­er­ship is for those with sound credit and solid jobs? Is he will­ing to say that credit, whether for auto loans, or stu­dent loans, or con­sumer pur­chases, should be re­stricted to those who have shown the ma­tu­rity to man­age debt — and no oth­ers need ap­ply?

“Avarice, am­bi­tion,” warned John Adams, “would break the strong­est cords of our Con­sti­tu­tion as a whale goes through a net. Our Con­sti­tu­tion is made only for a moral and re­li­gious peo­ple. It is wholly in­ad­e­quate to the gov­ern­ment of any other.”

In this deep­en­ing cri­sis, what is be­ing tested is not sim­ply the re­silience of cap­i­tal­ism, but the char­ac­ter of a peo­ple.

Pat Buchanan is a na­tion­ally syndicated colum­nist.

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