Just Take a Breath !

Just take a breath is the advice given, not hold your breath. What is the difference? Well if you only hold your breath you are obviously hoping something good will happen. And since you are holding your breath you also want that good thing to happen sooner rather than later. So the advice is to understand what happened and why, then to show patience until the problem is corrected. In his article Richard explains the problems and the perpetrators. He also explains what we can do to ensure the problem doesn’t raise its ugly head again. But the essence of his advice is don’t panic!

By Robert E. Freer, Jr., President of The Free Enterprise Foundation

“Just Take A Breath!” David Ramsey on his nightly financial planning hour on Fox Business

For those who like their cardiovascular exercise sitting down, it has been an interesting two weeks. Well, the federal rescue has been approved, and now what? At this point Mr. Ramsey’s advice is particularly timely. What does this all mean? How did we get here, and what do we do to get out and not have it happen again? The last part of the quest is most important. What do we do to prevent it happening again?

In an election season everyone loves to play the blame game, and there is plenty to be mad about. Some of our highest level civil servants have served us badly. What makes me so upset is the hubris with which they cast blame on the innocent and disclaim any responsibility for what has befallen us. The resulting severe challenges of their non- and malfeasance will bedevil our nation for years to come.

The failure to take any responsibility leads me to believe that our political servants have failed to learn anything from the tragedy and will do it again if we let them. “We”…That is US are ultimately responsible. We allowed ourselves to live in tomorrow and take the candy being handed out while failing to recognize that ultimately it has to be paid for. There are no free rides. Government, to some extent and friends and communities to a greater extent, can pull together to make life better for everyone, but that assumes that ultimately everyone pulls together for the community’s betterment. As a species, we still have a bit of work to do on that one.

In this recent crisis, we started down this trail a long time ago, but if I have to pick a moment in time, I would start with the decision in the Clinton Administration to seek passage of the Economic Redevelopment Act of 1995. Senior members of the administration argued that if they didn’t broaden government mandated urban initiatives to include a way for economically disadvantaged inner city residents to buy houses without down payments and a substantial credit record; they would never be able to meet a compelling interest of their constituency. They prevailed, and HUD was encouraged in supervising bank spending in the inner city to assure that banks provided loans on a “non discriminatory” basis to assure the inner city got its share.

Freddie Mac and Fannie Mae were also encouraged as well to buy massive amounts of these mortgages. To oversee this effort Fannie Mae selected two of the legislation’s architects successively as CEO, both of whom earned huge fortunes by using the credit worthiness of the U.S. to push the creation of ever more such risky paper on banks around the country. The awful damage that has been wrought by their misguided efforts with the tax payers’ hard earned money makes it particularly noxious for the Obama campaign to pretend that neither has a continuing meaningful role among Senator Obama’s close advisors. Senator Obama is the second largest recipient of Fannie Mae campaign largesse, and are we to so quickly forget that one of these two, Jim Johnston, led the committee that vetted the Democratic vice presidential candidates and selected Senator Biden?

In the early years of the new century, President Clinton’s surplus evaporated and turned into a deficit. The response to 9/11, regardless of whether you believe it was necessary, made it worse, yet the holiday party in real estate sales went on with both lending agencies encouraging Wall Street and the banks to make more and more of these subprime loans and to resist any attempts by the Republicans in Congress to bring it to a more controlled level before the bubble burst. The Administration, or at least The Federal Reserve, is complicit as well for making record amounts of cheap money available for the toxic mortgage program cooked up by Fannie and Freddie for far too long.

Meanwhile, the Internet today is replete with short and some not so short clips demonstrating beyond any reasonable doubt who was trying to control the problem and who was denying that a problem even existed. With a little surfing you will find, time and time again Republicans in Congress, including John McCain, The Federal Reserve and The Administration almost pleading to bring this under control. Democrats belittled their allegations and denied that a problem even existed. Regulatory witnesses were verbally abused, and despite serious efforts to bring about control, these efforts failed.

Realizing just how serious are the next few years both in Congress and The White House, voters should search the material out for themselves and make their own judgments regarding where control should lie in both branches of government. It would be beyond ironic, that anger at our military posture abroad and frustration at the fiscal mismanagement at home causes voters to put the control of both the legislative and executive branches into the hands of those who are most responsible for the financial debacle and whose core constituency insists on getting more from the federal government at whatever cost. To do so brings to my mind metaphors of arsonists and gasoline.

Both parties are now calling for heavier regulation of the financial sector. Devoid of the slanderous allegations by the guilty authors of the problem refusing to take their rightful blame, that is a good first step. The financial sector is not like any other business. As I noted two weeks ago, it is really a public utility connecting all parts of our economy and must be carefully monitored to prevent outlandish leveraging of risk by large institutions getting us all in the soup again.

The Mark to Market requirement about which you may have read, creates a valuation wonderland far more serious than the speculative problem it was designed to correct. It must not be allowed to destroy otherwise sound banking organizations. The SEC has been given the responsibility and the authority to solve this problem and should promptly suspend the rule during the pendency of its study. I do believe with the passage of the rescue and with Wells Fargo’s unassisted (except by its largest shareholder, Warren Buffet) acquisition of all assets of Wachovia from out of the grasp of Citibank, you can rest assured that it serves as the low point in the financial sector. As Citi ponders litigation, Mr. Buffet has made another great deal, and the financial market will go up from here.

Have you taken your breath yet? Ok, Take another! In the week of the rescue, the Fed made available 450 Billion dollars in assistance to the banks, and I suspect that the Treasury is well along in organizing the process for its acquisitions, assuring that liquidity will be promptly restored to the system.

As to preventing this from happening again, the burden rests with us. Casting your vote with intelligence and making it clear what you expect in the way of fiscal prudence from your representatives is a must. But that won’t do it if we ourselves continue to live on tomorrow’s capital. We have huge financial challenges on our “family’s” books from our 40 year spending binge and can’t even begin to consider for our nation and ourselves complex new social welfare programs that will only serve to bankrupt the country and us with it.

Neither candidate is serving us well not to make it clear that he realizes this. One has huge entitlement programs at the core of his campaign goals and has not informed us what changes he would make. The other has not really detailed his plans at all and cannot win without setting out a viable vision for our future. Both should be sharply questioned on the process that he will follow to right the ship.

Our nations’ founders, as I have often quoted in the past, understood that in creating a republic, history wasn’t with them. All previous attempts had failed as the people themselves gave in to the electoral blandishments of their representatives attempting to be or remain in power. Some say that we have begun the slide towards the realization of their fears. Only Time will tell whether we are that people so riven by “human passions unbridled by morality and religion” that we are headed to the ash heap of history, or are we, as our founders hoped and gave their lives for us to be, “the religious and moral people” that is still capable of leading our nation and the world forward to a better tomorrow. If we are, future generations will call us blessed and another in America’s “greatest” generations. It is all up to us!

Copyright © 2008 by Robert E. Freer, Jr. All rights reserved

About the author: Robert E. Freer, Jr. is President of The Free Enterprise Foundation. He is a Visiting Professor, at The Citadel and elected in 2005 to be their first John S. Grinalds Leader in Residence. A regular contributor to the Mercury, He can be reached by E-mail at The Citadel . Copies of his earlier columns can be found The Free Enterprise Foundation.

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