Financial meltdown insights...

With the financial markets in disarray, nearly everyone has one eye on Washington and one eye on Wall Street. The tone of the current debate on Capitol Hill and the price tag being discussed are endemic of why Congress has an approval rating hovering below 10%. On paper, the financial crisis should help Barack Obama’s presidential aspiration but so far it has not. There is one question that seems to be nagging at the American public.

Can we trust Obama to do a better job with the economy than the last two Democratic presidents?

This lack of trust may be well deserved. The “sub-prime” melt down can be traced to three major events – all caused by the Democrats playing politics. While Barack Obama was not around for the first two, he was elbows deep in the most recent turning point and, despite his limited time in the Senate, he was second largest recipient of campaign cash from Fannie Mae and Freddie Mac.

But first a bit of history on how we got into this mess.

Carter and the Community Reinvestment Act of 1977
In 1977 Democratic president Jimmy Carter pushed through the “Community Reinvestment Act” (CRA) to make it easier for low income families and those living in sections of cities that were in transition to buy a home. This law was passed to stop banks from “red lining” – refusing to make loans in certain parts of a city – and not providing loans to credit worthy minorities and other low income families. While the concept was noble and well intended, like so many Washington mandates, the devil was in the details.

Here is how the National Review described the problem in a recent editorial:

...The Community Reinvestment Act, a bit of legislative arm-twisting much beloved by Sen. Obama and his fellow Democrats. One of the reasons so many bad mortgage loans were made in the first place is that Barack Obama’s celebrated community organizers make their careers out of forcing banks to do so. ACORN, for which Obama worked, is one of many left-wing organizations that spent decades pressuring banks and bank regulators to do more to make mortgages available to people without much in the way of income, assets, or credit. These campaigns often were couched in racially inflammatory terms. The result was the Community Reinvestment Act. The CRA empowers the FDIC and other banking regulators to punish those banks which do not lend to the poor and minorities at the level that Obama’s fellow community organizers would like. Among other things, mergers and acquisitions can be blocked if CRA inquisitors are not satisfied that their demands — which are political demands — have been met. There is a name for loans made to people who do not have the credit, assets, income, or down payment to qualify for a normal mortgage: subprime.

The bankers cannot blame CRA entirely; they made a lot of bad bets on rising home prices. But CRA did influence lending standards across the banking industry, even in those institutions that are not strictly liable to its jurisdiction. The subprime debacle is in no trivial part the result of lending decisions in which political extortion trumped businesses’ normal bottom-line concerns. (Read the article HERE)

Bill Clinton and the “Reform” of 1995
In 1995 Democrat Bill Clinton pushed through a major reform of the CRA. In 2000, Howard Husock, the former Director of Case Studies at Harvard’s Kennedy School of Government and current Director of the Manhattan Institute's Social Entrepreneurship Initiative wrote “The Trillion-Dollar Bank Shakedown That Bodes Ill for Cities.”

The Clinton administration has turned the Community Reinvestment Act, a once-obscure and lightly enforced banking regulation law, into one of the most powerful mandates shaping American cities—and, as Senate Banking Committee chairman Phil Gramm memorably put it, a vast extortion scheme against the nation's banks. Under its provisions, U.S. banks have committed nearly $1 trillion for inner-city and low-income mortgages and real estate development projects, most of it funneled through a nationwide network of left-wing community groups, intent, in some cases, on teaching their low-income clients that the financial system is their enemy and, implicitly, that government, rather than their own striving, is the key to their well-being.” (Read the article HERE)

Howard Husock's City Journal article didn’t get much notice when it was published but, like the ancient Greek prophet Cassandra, time proved him correct.

The masterminds from the Clinton administration of this massive expansion of CRA did quite well for themselves. John Gibson of Fox News recently wrote an editorial on this subject titled: “Barack Obama's Fannie Mae/Freddie Mac Connection”

Fannie and Freddie have also been places for big Washington Democrats to go to work in the semi-private sector and pocket millions. The Clinton administration's White House Budget Director Franklin Raines ran Fannie and collected $50 million. Jamie Gorelick — Clinton Justice Department official — worked for Fannie and took home $26 million. Big Democrat Jim Johnson, recently on Obama's VP search committee, has hauled in millions from his Fannie Mae CEO job. (Read the article HERE)

The Proposed Reform of 2005
After a series of accounting scandals at Fannie Mae and Freddie Mac, in 2005 the Bush administration proposed tightening the regulation on these financial giants. Along near straight party lines, the Democrats and a handful of entrenched Republicans blocked the reform. Why were the Democrats, who never saw a government regulation they didn’t like, so bent on protecting the shady practices of Fannie and Freddie? Why would the Republicans, who controlled Congress and the White House, be so quick to run up the white flag? The Associated Press may have the answer; lots and lots of money. Fannie and Freddie have been stuffing the pockets of powerful members of congress for years.

The contributions are part of a lobbying arsenal that has invested $80 million over the past five years to win hearts and minds in the capital. Fannie and Freddie have spent big on hiring former White House officials and lawmakers. Some members of Congress have received tens of thousands of dollars from the PACS, especially those on committees with jurisdiction over the companies, including Frank.

They had huge armies of lobbyists that were tripping over each other, so they developed friends on both sides of the aisle over the years," said Peter Fitzgerald, a Virginia banker and former Republican senator from Illinois. "Republicans got very tight with them over the years and they got very powerful."

Stephen Ellis, vice president of Taxpayers for Common Sense, a Washington-based watchdog group, said the PACs' campaign cash to Congress has helped insulate Fannie and Freddie from oversight. (Read the article HERE)

Neither party was exactly a profile in courage during the 2005 reform attempt. With a $700 BILLION dollar bailout looming, the stench from this scandal has finally prodded some action with the FBI launching an investigation. Don’t expect big headlines here. When both political parties have dirt on their hands, things like this tend to get settled behind closed doors.

To gain America’s trust, Barack Obama needs to answer these questions

1. What exactly is his relationship to the former CEO of the bankrupt Fannie Mae, Franklin Raines?
2. Since 1989 Fannie Mae and Freddie Mac have used PACs and individual contributions to support candidates. Why is Barack Obama – who has only been in the Senate for 4 years – second in total campaign contributions from Fannie Mae and Freddie Mac for the past 20 years?
3. Why did he stand silent in 2005 and vote with the other Democrats to block financial reform which could have prevented the current crisis in the financial markets?
4. Why should a person with no experience in finance who has never studied economics be trusted to find a solution to this incredibly complex problem?

In fairness to Obama, as a former “community organizer” it is entirely understandable that he would support the goals of the Community Reinvestment Act. However, by seeking the job of president, he must show ALL Americans that he has the entire country’s best interest at heart and not just the special interest groups that helped get him a Senate seat.

Like Ricky used to say to Lucy. “You got some 'splaining to do!”

Before D.C. Gets Our Money, It Owes Us Some Answers

There is nothing like a potential financial crisis six weeks before an election to focus the attention of politicians. The same people who routinely rely on “continuing resolutions” because they can’t pass their own annual budget on time are now falling all over themselves to toss hundreds of millions of taxpayer dollars at a problem largely of their own making. The current financial situation is a bi-partisan mess that will result in much finger pointing and attempts to score political points before November.

There are no heroes in this sad tale, only villains. The victims of the meltdown are the American people who are being called upon to open their wallets, now and in the future, to pay for this mess.

Former Speaker of the House, Newt Gingrich has written a profound and important message in the National Review Online on this subject which we want to share with you:

Before D.C. Gets Our Money, It Owes Us Some Answers
Watching Washington rush to throw taxpayer money at Wall Street has been sobering and a little frightening.

We are being told Treasury Secretary Henry Paulson has a plan which will shift $700 billion in obligations from private companies to the taxpayer.

We are being warned that this $700 billion bailout is the only answer to a crisis.

We are being reassured that we can trust Secretary Paulson "because he knows what he is doing".

Congress had better ask a lot of questions before it shifts this much burden to the taxpayer and shifts this much power to a Washington bureaucracy.

Imagine that the political balance of power in Washington were different.

If this were a Democratic administration the Republicans in the House and Senate would be demanding answers and would be organizing for a “no” vote.

If a Democratic administration were proposing this plan, Republicans would realize that having Connecticut Democratic senator Chris Dodd (the largest recipient of political funds from Fannie Mae and Freddie Mac) as chairman of the Banking Committee guarantees that the Obama-Reid-Pelosi-Paulson plan that will emerge will be much worse as legislation than it started out as the Paulson proposal.

If this were a Democratic proposal, Republicans would remember that the Democrats wrote a grotesque housing bailout bill this summer that paid off their left-wing allies with taxpayer money, which despite its price tag of $300 billion has apparently failed as of last week, and could expect even more damage in this bill.

But because this gigantic power shift to Washington and this avalanche of taxpayer money is being proposed by a Republican administration, the normal conservative voices have been silent or confused.

It’s time to end the silence and clear up the confusion.

Congress has an obligation to protect the taxpayer.

Congress has an obligation to limit the executive branch to the rule of law.

Congress has an obligation to perform oversight.

Congress was designed by the Founding Fathers to move slowly, precisely to avoid the sudden panic of a one-week solution that becomes a 20-year mess.

There are four major questions that have to be answered before Congress adopts a new $700 billion burden for the American taxpayer. On each of these questions, I believe Congress’s answer will be “no” if it slows down long enough to examine the facts.

Question One: Is the current financial crisis the only crisis affecting the economy?

Answer: There are actually multiple crises hurting the economy.

There is an immediate crisis of liquidity on Wall Street.

There is a longer time crisis of a bad energy policy transferring $700 billion a year to foreign countries (so foreign sovereign capital funds are now using our energy payments to buy our companies).

There is a longer term crisis of Sarbanes-Oxley (the last "crisis"-inspired congressional disaster) crippling entrepreneurial start ups, driving public companies private, driving smart business people off public boards, and driving offerings from New York to London.

There is a long term crisis of a high corporate tax rate driving business out of the United States.

No solution to the immediate liquidity crisis should further cripple the American economy for the long run. Instead, the liquidity solution should be designed to strengthen the economy for competition in the world market.

Question Two: Is a big bureaucracy solution the only answer?

Answer: There is a non-bureaucratic solution that would stop the liquidity crisis almost overnight and do it using private capital rather than taxpayer money.

Four reform steps will have capital flowing with no government bureaucracy and no taxpayer burden.

First, suspend the mark-to-market rule which is insanely driving companies to unnecessary bankruptcy. If short selling can be suspended on 799 stocks (an arbitrary number and a warning of the rule by bureaucrats which is coming under the Paulson plan), the mark-to-market rule can be suspended for six months and then replaced with a more accurate three year rolling average mark-to-market.

Second, repeal Sarbanes-Oxley. It failed with Freddy Mac. It failed with Fannie Mae. It failed with Bear Stearns. It failed with Lehman Brothers. It failed with AIG. It is crippling our entrepreneurial economy. I spent three days this week in Silicon Valley. Everyone agreed Sarbanes-Oxley was crippling the economy. One firm told me they would bring more than 20 companies public in the next year if the law was repealed. Its Sarbanes-Oxley’s $3 million per startup annual accounting fee that is keeping these companies private.

Third, match our competitors in China and Singapore by going to a zero capital gains tax. Private capital will flood into Wall Street with zero capital gains and it will come at no cost to the taxpayer. Even if you believe in a static analytical model in which lower capital gains taxes mean lower revenues for the Treasury, a zero capital gains tax costs much less than the Paulson plan. And if you believe in a historic model (as I do), a zero capital gains tax would lead to a dramatic increase in federal revenue through a larger, more competitive and more prosperous economy.

Fourth, immediately pass an “all of the above” energy plan designed to bring home $500 billion of the $700 billion a year we are sending overseas. With that much energy income the American economy would boom and government revenues would grow.

Question Three: Will the Paulson plan be implemented with transparency and oversight?

Answer: Implementation of the Paulson plan is going to be a mess. It is going to be a great opportunity for lobbyists and lawyers to make a lot of money. Who are the financial magicians Paulson is going to hire? Are they from Wall Street? If they’re from Wall Street, aren't they the very people we are saving? And doesn’t that mean that we’re using the taxpayers’ money to hire people to save their friends with even more taxpayer money? Won't this inevitably lead to crony capitalism? Who is going to do oversight? How much transparency is there going to be? We still haven't seen the report which led to bailing out Fannie Mae and Freddie Mac. It is "secret". Is our $700 billion going to be spent in "secret" too? In practical terms, will a bill be written in public so people can analyze it? Or will it be written in a closed room by the very people who have been collecting money from the institutions they are now going to use our money to bail out?

Question Four: In two months we will have an election and then there will be a new administration. Is this plan something we want to trust to a post-Paulson Treasury?

Answer: We don’t know who will inherit this plan.

The balance of power on election day will shift to either McCain or Obama. Who will they pick for Treasury Secretary? What will their allies want done? We are about to give the next administration a level of detailed control over big companies on a scale even FDR did not exercise during the Great Depression. Is this really wise?

For these reasons I hope Congress will slow down and have an open debate.

And in the course of that debate, I hope someone will introduce an economic recovery act that makes America a better place to grow jobs. I hope the details will be made public before the vote.

For more details on my action plan for getting the American economy back on track and building long-term economic prosperity, you can read this message recorded yesterday to American Solutions members.

This is a very important week for the integrity of the Congress.

This is a very important week for the future of America.

If Washington wants our money, then it owes us some answers.
--- Newt Gingrich

To put the world right in order, we must first put the nation in order; to put the nation in order, we must first put the family in order; to put the family in order, we must first cultivate our personal life; we must first set our hearts right. --- Confucius

For all the talk of “change” this political season, let’s remember where it all begins… not with a political candidate, but you and me.

Foster Friess

To stay civilized and free, we can't be ignorant of our enemies...

The son of Muslim-Syrian immigrants, Dr. M Zuhdi Jasser graduated from the Medical College of Wisconsin on a U.S. Navy scholarship in 1992. He practices internal medicine and nuclear cardiology in Phoenix where he previously served as President of the Arizona Medical Association. He also chairs the Bioethics Committee for Banner Good Samaritan Regional Medical Center. Dr. Jasser co-founded the American Islamic Forum for Democracy to articulate the freedom of thought and religious practice American Muslims enjoy.

The Unfought War on Islamism - To stay civilized and free, we can’t be ignorant.

By M. Zuhdi Jasser, National Review Online. September 11, 2008

In 1816, Thomas Jefferson proclaimed in a letter to a friend an adage that we should be heeding today: “If a nation expects to be ignorant and free in a state of civilization, it expects what never was and never will be.”

Never was this advice more desperately needed — or more consciously avoided — than it is today. American’s educational system has seemed unwilling to enlighten our children to the nature, history, and implications of the war that has been declared on us and on free people in general by Islamist theocratic totalitarians. At best, the subject is entirely avoided in America’s classrooms; at worst, it is ascribed to causes that facts prove are untrue — such as poverty or American foreign policy…” Click for Full Article

Jasser shares more thoughtful insight in this six minute video.

The moments that unite us as a people ...

....are often reduced to a simple question asked among friends and colleagues to reinforce the shared links that bind us. For a previous generation the question was about Pearl Harbor. For those of us with a few gray hairs it was John F. Kennedy. Now, the question is, “Where were you when you heard about the Twin Towers?”

I ask you to join us in a prayer for those who perished on that dark day seven years ago; for those who lost family and friends; for the children who will never see their fathers or mothers again; for all of our military men and women who are working tirelessly to see that this never happens again. To pray that those that espouse evil and kill the innocent without remorse or humanity will never victimize our country again.

With a nation struck numb with fear and anger, President George W. Bush's words to the Nation are just as powerful today as they were that dark night:

Tonight, I ask for your prayers for all those who grieve, for the children whose worlds have been shattered, for all whose sense of safety and security has been threatened. And I pray they will be comforted by a power greater than any of us, spoken through the ages in Psalm 23: "Even though I walk through the valley of the shadow of death, I fear no evil, for You are with me."

This is a day when all Americans from every walk of life unite in our resolve for justice and peace. America has stood down enemies before, and we will do so this time. None of us will ever forget this day. Yet, we go forward to defend freedom and all that is good and just in our world. Thank you. Good night, and God bless America. ----- President George W. Bush, September 11, 2001

God Bless, Foster *****

Watch this 9/11 clip from a Canadian news source not frequently seen.

Friess Blast McCain for Blatant Sexism

From his mountain hideout somewhere deep in the Tetons, Foster Friess was still smarting from his incorrect prediction that Senator John McCain would select Governor Tim Pawlenty of Minnesota as his running mate. "He only picked Sarah Palin because she was a girl," he complained bitterly.

Foster’s son, Stephen, has been trying to talk some sense into his father. “Dad, Dad, hold on...she's the perfect choice,” he was overheard saying. “You couldn't have ordered a better pick from Central Casting. I mean our country’s president is like our CEO. As a mayor and a governor she's had more executive experience than Senators Obama, McCain & Biden combined!”

“Maybe,” Foster grumped as he tossed the “McCain/Pawlenty” needlepoint he had been working on in the fireplace.

“She's married her high school sweetheart who just happens to be a union member and works in the oil fields,” Stephen pleaded. “That will appeal to blue collar workers. Their oldest son is headed for Iraq so the military types will like her and she gave birth to her fifth child knowing he had Down’s Syndrome. This is a true Christian who values all life.”

“Yeah, yeah,” Foster said. “But is she tough enough for the job?”

“Tough!” Stephen laughed. “Her senior year of high school she lead her team to the state basketball championship. Her nickname was Barracuda!”

“That doesn't tell me anything.”

“How about this,” Stephen said with a knowing grin. “She made the winning free throw and played the game with a stress fracture in her ankle! Is that tough enough for you?”

“Really?” Foster said as he sat up a bit straighter in his chair

“Yes, really,” Stephen answered. “Plus, she runs marathons, loves to hunt and fish and, as governor, she took on the corruption in the “old boy’s” network in Alaska and cleaned house. She has gone toe to toe with big oil and won. All of this while cutting taxes. Her current approval rating is at 80% in the state.

“No kidding?” Foster said as he rubbed his chin.

“She even told the federal government she wasn't going to put up $300 million dollars of her state's money for that “bridge to nowhere” that made everyone so mad. She is a wonderful pick. Since the announcement, Dr. James Dobson at Focus on the Family has gone from saying he would never vote for McCain to saying “I could pull that lever” for a McCain/Palin ticket.”

“But I had dinner with Governor Pawlenty and his wife,” Foster said with a sigh. “I really liked them.”

“I know, I know,” Stephen said as he patted his father on the back. “Maybe she’ll invite you to dinner sometime. She might even make you some venison she shot herself.”

“That would be nice,” The senior Friess responded. "I don't like being wrong but I see what you're saying and I'm ecstatic.”

“Finally,” Stephen said as he turned his eyes to heaven and mumbled a silent “Thank you.”

Looking at Palin’s picture on his computer screen, Foster said, “You have to admit she's really good looking.”

Stephen’s shoulders slumped and he rolled his eyes. "Dad, you can't talk about a woman's beauty these days because it might offend someone.”

“I give up,” Foster Friess said as he stood up and headed toward the door.

“Where are you going?” Stephen asked.

“I’m going to go play a round of golf. That seems to be the only thing I can do right lately.”

***********************************************


I think Governor Sarah Palin is an incredible pick and will make an outstanding Vice President. With all of the talk about Hillary, who would have thought the Republicans might be the ones to nominate and elect America’s first female Vice President?

If you want to help this Dream Team get elected, be sure to visit, McCain/Palin 2008.

Other takes on the Palin pick:

Dick Morris Lady is a Champ. (New York Post)
Mark Steyn The Hostess With the Moostest. (National Review)
Newt Gingrich, The Power of Authenticity. (Weekly Standard)