A Hard Time vs. Hard Times [Monday AM Update]

By Mike DeVine, Legal Editor for The Minority and HinzSight Reports

We are going to have a hard time no matter what plan wins this weekend. The issue re times, is will the plan ensure long hard times (see many years).

[Monday, September 29, 2008 UPDATE – Bailout bill less likely to usher in long, deep recession thanks to McCain and House republicans. See my post-bailout bill posting Column:

Republicans purge Paulson-Pelosi bailout of most onerous Obamanations


Thanks to the House GOP and McCain, we learn, the following:Democrats backed down from a controversial proposal to let bankruptcy judges alter the terms of mortgages, and from another that would have steered any ultimate government profits from the package to affordable-housing programs.Not one thin dime for a bridge to ACORN for any squirrelly leftist, and as to help for homeowners:Treasury will buy mortgage-backed securities, mortgages and other assets secured by residential real estate. The legislation requires Treasury to use its position as the investor in those loans and securities to “encourage the servicers of the underlying mortgages” to help minimize foreclosures.All investors should, of course, “minimize” foreclosures. This language simply states the obvious in prudence. The Obama Democrats wanted the government to have non-gambling insured mortgagors to pay for gamblers’ homes and in essence buy them loyal democrat voters for life, and forever socialize the housing market.

[Rush Limbaugh is reporting today – FRIDAY UPDATE – This is now occuring in the context of Democrat politicization of the process as Reid blames the arrival of McCain to DC as causing a bi-partisan deal to blow up. That is a lie. All but a few Republicans were on board for anything like the Paulson Plan, and the intent of the Dems is to force the GOP to alientae its conservative base. There is hope that this action is backfiring and bringing McCain closer to the base. Moreover, the Dems let Obama speak first in Thursday’s White House meeting and the first words out of his mouth attacked a Republican Study Committee originated plan that he was ignorant of until a short time before the meeting when he got an e-mail from Treasury Dept. employees.]

[September 26, 2008 UPDATE – It appears to Gamecock that suspension of the mark-to-market rules would accomplish the main goal of the bailout (removing bad loans from the books), by raising the value of capital on the books of financial institutions, thue freeing up capital for new loans.

I also favor two-year moratorium on cap gains taxes and corp taxes and repeal of Sarbanes-Oxley and would reject any plan that requires taxpayers to bail out mortgagors holding mortgages they can’t afford based on their income (people that gambled their homes would appreciate hoping to then re-fi down to an affordable mtg payment) as this would do semi-permanent damage to the free market and be a giant step towards wealth destroying socialism we see in Europe.

But it seems to me that the accounting change ought to provide the confidence the markey needs to unclog its new loan producing arteries.]

Many Americans are now in the midst of a year-long hard time born of skyrocketing energy prices and/or the housing/credit crunch. It has been nearly impossible to get small business loans for many months and home loans for all but the top ten percent of credit risks for many more months.

This column has long chronicled the Democratic Party’s explicit policy of energy self suicide since 1978 in restricting access to expanded oil drilling and their regulations (especially including the Endangered Species Act and environmental lawsuits) making the building of oil refineries and nuclear power plants nearly impossible.

Below, I discuss the artery-hardening diet the Democrats have force-fed the credit markets since 1998 that is the cause of the present crisis. But before we look at what got us to this precipice, let us look at where we are.

The hard time got worse two weeks ago when the credit crunch finally clogged bank to bank loan arteries, prompting Treasury Secretary Henry Paulson to propose a massive government bailout (for lack of a better word) aimed at preventing a full-blown panic in U.S. financial markets (and world markets that catch pneumonia when we sneeze) that would most certainly precipitate a deep recession.

Deep recessions are bad. In fact, they are very bad, and if one could be near certain that massive government actions could prevent same and also be the kinds of actions that we could reverse to prevent even worse long term recessions, then such actions must be seriously considered.

To date, and after intense study for days, I am not convinced that we can avoid the extension of the hard time we find our self in nor that we can keep it from getting harder before it gets better, even with the massive Paulson plan.

The burden of persuasion is on Paulson, with said burden all the heavier given the $700 Billion price tag.

I am certain that we could take actions now that would prevent a precipitous stock market crash for a time, but that would not in any way ensure that it would not crash in the not too distant future and that which actions would exact permanent, serious Hard Times with an “s” causing, damage on the goose that has lain historic golden eggs for over 200 years: The America Free Enterprise System.

Americans in the past have had to endure recessions born of panics, but only one Great Depression and we most surely don’t want to repeat the mistakes that caused the hard time of 1929, nor those mistakes that lengthened it into hard times through 1941. We have learned many lessons from that era regarding stable money supply, deposit insurance and other safety nets that are the proper province of government in a post-agrarian society. Unfortunately, the post-Depression/post-World War II generation left too much of Big Government in place despite peace and prosperity, and have used same to buy votes with prosperity-producing Liberty being the victim in a slow motion creep, or slouching towards Gomorrah.

The current crisis is only tangentially related to the above, but the proposed solution to the current crisis could be an antidote worse than the cure, as it would accelerate the loss of Liberty on a scale never seen in America.

As we make momentous choices with the Panic-Threat Gun at our head, it is vital that we spot already smoking guns so that we not be destined to repeat acts born of historical ignorance.

Democrats hold the smoking gun that keeps America oil in the ground and beneath the sea in their left hand and the one that keeps American credit market arteries clogged in the other.

Ignore the pox on all (Dems and Republicans) their houses, hands in the air populist anger at “greed” in general and “greedy corporate CEOs” in particular. No, saving ourselves from very hard times for many years requires that we focus on what and who caused the crisis.

Greed is one of the seven deadly sins that has existed since Eve bit the apple. The beauty of the America system has been how the free market exacts punishment for greed and forces it to provide goods and services that others freely want.

The present crisis was born in 1998 when a “quasi” (and this is key) governmental entity was unleashed in a way that it had never been before. Fannie Mae (and Freddie Mac) was born in the midst of the Great Depression and amended to expand its reach to assist lower income families attain the American Dream of homeownership under President Jimmy Carter in the late 1970s. We experienced no crisis at Fannie’s hands for at least 60 years.

In 1998, President Bill Clinton and his Treasury Secretary Robert Rubin reinterpreted Carter and the Dems’ “Community Redevelopment Act” to force lenders to prove a negative, i.e. that they were NOT denying loans to low income would be borrowers based on race. Former Senator Phil Gramm (McCain advisor) and many other Republicans railed against the changes Clinton appointee as CEO of Fannie Mae, Franklin Raines was bringing to the credit markets in guaranteeing and/or buying risky loans. Then came the accounting scandals at Fannie and Freddie in 2003-4 that forced Raines to resign, albeit with millions in his parachute.

In 2005, Federal Reserve Chairman Alan Greenspan and Republicans, prominent among them John McCain, making dire warnings before the Senate Banking Committee that Fannie and Freddie had bought/guaranteed a dangerous percentage of the overall mortgage market. Democrats on the committee voted the party line against a McCain-sponsored bill that would have stopped the practice and prevented the present crisis.

Given the above, it is a mystery to me that candidate McCain doesn’t emphasize this fact rather than make populist appeals about “greedy CEOs” and lack of regulation by the SEC, that absolve the guilty parties. Yes, Raines was a CEO, but his corporation was a government agency now shown to be “too big to fail”. It never was quasi. Moreover, given that Fannie was not subject to normal free market forces and distorted the free Markey by buying up risky loans, no amount of regulation at the SEC would have made a difference.

It is possible that the crisis would not have developed had investors not fled stocks for real estate in droves due the 2000 tech bubble and flat stock market of the past seven years and had Greenspan not kept interest rates so low after 911. I doubt it, but one lesson we should take away from this debacle is that homes need to be homes first and not an investor’s substitute for liquid investments.

The fact is that Democrats and Democrats alone prevented the McCain bill that would have changed the regulation that caused the crisis from even coming to the Senate floor for debate. Democrats passed the CRA in 1978, changed the regulations bureaucratically in 1998 and rejected the 2005 that would prevented the current 2008 crisis.

They must be held accountable politically. Their policies must be rejected economically.

McCain needs to make the case everyday against his Democratic opponent who favors Hoover era Smoot-Hawley Depression causing trade policies, and all Republicans and responsible Democrats must reject socialistic panic-prevention measures that would usher in Hard Times down the road even if they lessen the current hard time for a short time.

I now lean toward the proposal by Steve Forbes (see my first comment below blog for link), but am still studying the matter as, it appears, most conservative Republicans are doing. I have concluded that if any proposed law is anything like huge socialistic slouch towards Gomorrah, then let it pass at the hands of President Bush and Democratic Party majorities.

More later re possible solutions, but one of the main solutions America needs to learn is that electing more than 40 Democrats to the U.S. Senate is more hazardous than bad cholesterol to the nation’s health.


I am looking at Rep. Hensarling’s RSC proposal to eliminate capital gains and corporate taxes for two years in lieu of the $700 Billion bailout as well as the Forbes’ plan above.

The GOP must reject more aid to current mortgagors (July law required banks to renegotiate ARMs with certain mortgagors).

This crisis is about unclogging the arteries of the financial system to make future good loans, not bailing out bad ones.

Mike DeVine’s Charlotte Observer columnsLegal Editor for The Minority and HinzSight Reports“The way to stop discrimination on the basis of race is to stop discriminating on the basis of race.” – The Chief JusticeRace 4 2008“One man with courage makes a majority.” – Andrew Jackson