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« Back to Opinion & Analysis
A House of Cards
Editorial for the Houston Community Newspaper
Steven F. Hotze, M.D.
October 1, 2008
The Wall Street debacle is of the Democrats' own making. In 1995 President Clinton's new regulations for the Community Reinvestment Act (CRA) became effective. These regulations required banks to make home loans to low income groups. Community organizations like the leftist group ACORN collected over $760 Million in fees by 2000 from the banks for marketing these loans. Banks were pressured by CRA bank regulators to make these risky loans or suffer penalties. Bankrupt Countrywide Mortgage Company had made over $600 Billion; yes Billion, in risky loans to low income individuals. Most of these loans had adjustable rate mortgages (ARMs).
The loans of all these banks were then packaged and sold to Fannie Mae and Freddie Mac which liberal Barney Frank and the Democrats said were not backed by the federal government. Fannie Mae and Freddie Mac packaged these loans and sold them as securities to all the Wall Street investment banks, which in turn resold them to investors and held some in their own portfolios. Banks all over the country invested in these new securities. Wall Street investment bankers made out like bandits, earning billions upon billions of dollars in profits buying and selling these securities.
When federal regulators notified Congress that Fannie Mae and Freddie Mac were "cooking" their accounting books the Republicans held a Congressional hearing. You should take 8 minutes to watch excerpts of the 2005 Congressional hearing so that you can see and hear the Democrats defend Fannie Mae and Freddie Mac. Frank Rains, the former Chairman and CEO of Fannie Mae, is Obama's economic advisor. Wall Street bankers are heavy donors to the Democrats who protect them through legislation.
Click on this link of the Congressional hearing on Fannie Mae and Freddie Mac: http://www.youtube.com/watch?v=_MGT_cSi7Rs
When the low income people who were given these home mortgages failed to meet their payments, the value of the Wall Street securities which were backed by the loans deteriorated in value. Fannie Mae, Freddie Mac, the investment banks, like Bears-Stearns, Lehman Brothers, Morgan Stanley, Goldman Sachs, Merrill Lynch, and Wachovia and Wamu found themselves holding the bag and needing a bailout. Where else to turn but to the federal government and their old friend Henry Paulson, U.S. Secretary of the Treasury, who was the immediate past Chairman and CEO of Goldman Sachs, the largest investment bank on Wall Street. In the Wall Street bailout bill before Congress, Paulson is given unprecedented power and control over $700 Billion of the feds money to be doled out at his discretion. Who do you think Paulson is going to take care of?
This government money is going to buy the "toxic" loans made by all the Wall Street banking institutions and let them stay in business. The taxpayers will foot the bill.
The New York bankers and mainstream media financial pundits, as well as the Washington establishment, are fanning the flames of panic. The political class and their corporate allies love a crisis, which is usually of their own making, in order to scare the public into giving them more power over the free enterprise system and to provide them with a reason to confiscate more money.
It seems wrong headed to bailout Wall Street. The Wall Street bankers should take their medicine like any other businesses in the country which fail. This may be the opportunity to decentralize the financial system of the country and get it out of New York.
Why transfer Wall Street's debt to the American citizens? Our federal government is already trillions of dollars in debt. To allow the federal government to go further in debt will be inflationary and dramatically undermine the value of the dollar.
The federal government cannot continue to accumulate debt. At some point the federal government's house of cards will come tumbling down, just like it has on Wall Street.
About Conservative Republicans of Texas
Steven F. Hotze, M.D. is president of Conservative Republicans of Texas and founder of Hotze Health & Wellness Center in Houston, Texas.
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