Retro 5: Who Really Caused The Great Recession? Part 1 - "Duped America" Highlights

Given family engagements in town this week, we will be rerunning some of our most popular posts, posts that have garnered the most attention and which showed that we are currently enduring the worst set of politicians America has ever had.

MONDAY, MAY 14, 2012

Who Really Caused The Great Recession? Part 1 - "Duped America" Highlights

One character flaw about President Obama that constantly bugs me and which we have discussed many times before in this blog (see:http://loathemygovernment.blogspot.com/2009/08/blame-game-part-2.html), is his refusal to accept any responsibility for the failures of his administration. In his mind, the mostly non-existent accomplishments of his Presidency are due to a variety of external forces including:

- His favorite whipping boy excuse, the Bush administration. Never mind that the country's economy really started to come apart (soaring unemployment and soaring national debt and budget deficits when the Democrats, Nancy Pelosi, and Harry Reid took over Congress in 2007 after the 2006 midterm elections), as the following graphs illustrate (double click on the graphs to get a bigger picture):

- The Japanese tsunami.
- ATM machines.
- Europe's financial woes.
- The Arab spring, which increased oil prices.
- Wall Street
- Banks
- Congress.
- Republicans, even though from 2007 through the end of 2011 the Democrats controlled 80% of the Federal government:

There is any old saying that goes as follows: "Don’t tell me how rocky the sea is, just bring the darn ship in." Obama has never understood this concept. No one forced him to be President. Any good manager coming into a new job should assess what the situation is and then try to progress from that point.

That is what leaders do, they look forward. Obama continues to look back to blame anyone or any organization for the failures and inadequacies of his administration. Rather than focus on the future and how to get there, he wastes time and energy to cover his own shortcomings. Blaming others in the past does not calm the seas he inherited and does not bring in the darn ship.

But if he honestly did look into the past, which I doubt he is capable of doing, he would not like what he sees. In the next two days we will present an argument that says the Great Recession was not caused by the following factors:

• The Bush administration
• The Japanese tsunami
• ATM Machines
• Europe's financial woes
• The Arab Spring
• Republicans in Congress
• Republicans in general
• Wall Street
• Banks

What really caused the Great Recession and the destruction of wealth, high unemployment, and general economic malaise that still haunts us today, were Washington Democrats. It was not Wall Street, it was not greedy banks, it was not Bush, it was not Republicans, etc.

It was purely and simply the insistence of Democrats in Washington that home ownership in predominantly Democratic voting areas be made easier to accommodate. That was the single root cause of all of our current economic troubles. Sure, Wall Street banks took advantage of the situation for a while to make big profits. Sure, mortgage lenders made shady deals to close mortgages and make their money upfront.

But as we will try to prove over the next two days, based on experts in the industry, none of this happens without the aiding and abetting by Obama's fellow Democrats and Obama himself. His career profited politically by allowing the malfeasance to continue until the crash, an economic crash that wiped out banks, mortgage dealers, construction jobs, home building companies, housing equity wealth, stock market wealth, job growth, etc.

Today we will review the work of Richard Bernstein who has written a book called "Duped America." According to his bio on his website:


Author Richard Bernstein, a former lifelong Democrat, has organized this masterpiece into 31 short easy-to-read chapters. In each and every chapter Bernstein explains how the Democrat Party and their allies in the Mainstream Media have repeatedly attempted to dupe Americans. Each chapter is filled with enough facts to allow you to become more than just knowledgeable about each subject. Duped America is so thoroughly researched it has almost 1,000 footnotes.


Included below is a chapter from the book that he allows anyone to download from his website and thus, I am pretty sure he would not have a problem with me including it here. I am referencing his work since many of the statistics and historical facts he refers to I have already confirmed in previous posts in this blog, making me feel comfortable enough that he has his sources and statistics correct.

The chapter he allows people to download concerns the decades of housing policy abuses by Democrats in Washington that eventually led to the Great Recession. Let me list a few highlights/excerpts from the chapter before you read it in total and let me know what common thread Mr. Obama would realize if he read the chapter himself (the link to Mr. Berstein's website can be accessed viahttp://www.dupedamerica.com/):

• Democrats created the lax mortgage policies that precipitated the crisis while simultaneously stifling Republican efforts to prevent it.
• The history of the crisis started with the Community Reinvestment Act (CRA), signed into law by Democrat President Jimmy Carter in 1977.
• When Democrat Bill Clinton became President in 1992, he broadened the Community Reinvestment Act in ways Congress had never intended.
• When the Republicans attempted to restore fiscal sanity by paring back the CRA, they were stymied by Democrats.
• Democrats such as Barney Frank (D-MA), Ted Kennedy (D-MA) and Maxine Waters (D-CA) allied with the Clinton administration to broaden the acceptability of these risky mortgage loans.
• In 1995, an unrestrained ClintonDemocratic administration announced a comprehensive strategy to push home ownership in America to new heights – regardless of the compromise in credit standards that this would require.
• Democrat Clinton legalized the securitization of these mortgages, which allowed Fannie and Freddie to finance everything by buying loans from banks, then repackaging and securitizing them for resale on the open market.
• Fannie Mae and Freddie Mac were big campaign donors, with the bulk of their money going to Democrats.
• Between 1989 and 2008, the leading recipient of Fannie/Freddie campaign money was Connecticut Democrat Chris Dodd, the Senate Banking Committee Chairman, who collected more than $165,000. In second place was then-Democrat Senator Barack Obama, who, in just three years in the U.S. Senate, took in $126,000. Third, was MassachusettsDemocrat John Kerry, who received $110,000.
• Since the 1990s, Fannie Mae and Freddie Mac have been run by Democrat appointees.
• From 1991 to 1998, Fannie Mae was led by James Johnson, a long-time aide to formerDemocrat Vice President Walter Mondale.
• Johnson’s successor as head of Fannie Mae, Franklin Raines, had previously served as a budget director to Democrat President Bill Clinton.
• In July 2003, Senators Chuck Hagel (R-NE), Elizabeth Dole (R-NC) and John Sununu (R-NH) introduced legislation to address regulation of them [Fannie Mae and Freddie Mac]. The bill was blocked by theDemocrats.
• But the legislation [which was reintroduced in 2005] didn’t become law for a single reason:Democrats opposed it on a party-line vote in the Senate Banking Committee.
• Rep. Artur Davis (D-AL) now admitsDemocrats were in error.

Obviously, the common theme is that the seeds for the destruction of the housing market which led to the destruction in the banking industry which led to high unemployment was planted long ago and tended to fruition by Democratic Presidents, Congressmen, and bureaucrats.

But these are just the headlines. If you really want to be depressed, please read the following downloaded chapter from Mr. Bernstein. The details are far worst according to his research and writings. The political class selfishness, personal enrichment, and abuses of power make their duping of us even more egregious.

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MORTGAGE CRISIS…

Americans wondering who was responsible for the mortgage crisis should ask themselves a question: is owning a home a privilege or a right? Despite the meltdown in 2008, the seeds for the mortgage crisis were sown much earlier by a Democrat Party long convinced home ownership was an entitlement.

As this chapter shows, once that basic premise became conventional wisdom, it was all downhill from there. If one listens to the mainstream media and many Democrats, the blame for the mortgage crisis rests with the Republicans and the Bush administration. They’ve convinced the public that Democrats had nothing whatsoever to do with our current financial woes.

Precisely the opposite is true: Democrats created the lax mortgage policies that precipitated the crisis while simultaneously stifling Republican efforts toprevent it. The history of the crisis started with the Community Reinvestment Act (CRA), signed into law by Democrat President Jimmy Carter in 1977.

The law was designed to foster home ownership in low-income communities by pushing banks to aggressively lend to low and moderate income people. At first, it was easy to comply with the CRA. Banks merely had to demonstrate that they did not discriminate in making loans in poor and black neighborhoods.

When Democrat Bill Clinton became President in 1992, he broadened the Community Reinvestment Act in ways Congress had never intended. In 1995, rather than submit legislation that the Republican-led Congress was certain to reject, Clinton bypassed Congress entirely, ordering the TreasuryDepartment to rewrite the CRA rules.

 As a result, banks were forced to fulfill loan “quotas” in low income neighborhoods. That wasn’t the only problem. CRA also allowed community activist groups such as ACORN (Association of Community Organizations for Reform Now), for whom Barack Obama once worked in Chicago, and NACA (Neighborhood Assistance Corporation of America) to file complaints that could affect a bank’s CRA rating.

Failure to comply with CRA or a bad rating meant a bank might not be allowed to expand lending, add new branches or merge with other companies. Banks with poor CRA ratings were also hit with stiff fines. This rewrite of CRA gave activist groups like ACORN and NACA unprecedented power. Protests often held in bank lobbies or in front of the homes of bank officials, coupled with threats of litigation, allowed these groups to extort huge sums of money from financial institutions.

In response, financial institutions began allocating more funds to low-income, high risk borrowers.Loans started being funded on the basis of race and often little else. CRA became an excuse for lowering credit standards.

Many Democrats have claimed that banks subject to the CRA represented few of the mortgages that led to our current problems. Not true. Nearly 4 in 10 subprime loans made between 2004 and 2007 were funded by CRA-covered banks such as Washington Mutual and Indy Mac. Many other subprime lenders not covered by the Act were, in effect, beholden to CRA mandates because they were owned by banks that were subject to it.

Since CRA only covered banks, the Clinton administration created a separate department at Housing and Urban Development to police “fair lending” policies at other institutions such as Countrywide and lending behemoths, Fannie Mae and Freddie Mac.

The result? Countrywide made more loans to minorities than any other lender, and not surprisingly, was one of the first lenders overwhelmed by loan defaults. As groups like ACORN ran their intimidation campaigns against local banks, they eventually hit a roadblock. Banks told them they could afford to reduce their credit standards by only a little – since Fannie Mae and Freddie Mac refused to buy up these risky loans for resale on the secondary market.

ACORN realized that unless Fannie and Freddie were willing to relax their credit standards as well, local banks wouldn’t make enough loans to individuals with bad credit histories or with very little money for a down payment. Democrats such as Barney Frank (D-MA), Ted Kennedy (D-MA) and Maxine Waters (D-CA) allied with the Clinton administration to broaden the acceptability of these risky mortgage loans. When the Republicansattempted to restore fiscal sanity by paring back the CRA, they were stymied by Democrats — and by ACORN.

In 1995, an unrestrained Clinton administration announced a comprehensive strategy to push home ownership in America to new heights – regardless of the compromise in credit standards that this would require. Fannie and Freddie were given massive subprime lending quotas, which would increase to about half of their total business by the end of the decade.

Then came the single most catastrophic decision leading to the housing crisis: Clinton legalized the securitization of these mortgages, which allowedFannie and Freddie to finance everything by buying loans from banks, then repackaging and securitizing them for resale on the open market.

Thus, began the meltdown. In 1997, Bear Stearns handled the first securitization of CRA loans — $385 million worth — all guaranteed by Freddie Mac. Subsequently, a subprime market that had been a relatively modest part of the mortgage business with $35 billion in loans in 1994 soared to $1 trillion by 2008.

Regrettably, this massive bundling of subprime mortgages wound up poisoning the entire mortgage industry. Fannie and Freddie used their “affordable housing mission” to avoid restrictions on their accumulation of mortgage portfolios. They arguedthat if they were constrained, they wouldn’t be able to adequately subsidize affordable housing. As a result, by 1997, Fannie was offering mortgages witha down payment of only 3 percent. By 2001, it was purchasing mortgages with “no down payment at all.”

 By 2007, Fannie and Freddie were required by Housing and Urban
Development to show that 55 percent of their mortgage purchases were to low and moderate income borrowers, and, within that goal, 38 percent of all purchases were to come from underserved areas (usually inner cities).

Meeting these goals almost certainly required them to purchase loans with low down payments and other deficiencies that would characterize them assubprime or Alt-A. The decline in lending standards was also facilitated by competition. Fannie and Freddie were now competing with private-label mortgage lenders such as investment and commercial banks to fulfill the affordable housing requirements imposed by Congress.

The inevitable result? Everyone was scraping the bottom of the mortgage barrel in search of new borrowers. Once the looser lending standards were offered to low and middle income buyers, it was naïve to believe that they wouldn’t lead to more relaxed standards for higher-income and prime borrowers as well. This spreading of looserstandards to the prime market greatly increased the availability of credit for mortgages, and ultimately led to the bubble in housing prices.

Unsurprisingly, Fannie Mae and Freddie Mac were huge campaign
contributors to Congress, spending millions to ensure no reform would be implemented to restrict them. In all, 354 members of Congress receivedfunds. The bulk of the money went to Democrats.

Between 1989 and 2008, the leading recipient of Fannie/Freddie campaign money was ConnecticutDemocrat Chris Dodd, the Senate Banking Committee Chairman, who collected more than $165,000. Dodd opposed restrictions on Fannie and Freddie and pushed hard for the continuance of subprime loans. In second place was then-Senator Barack Obama, who, in just three years in the U.S. Senate, took in $126,000. Third, was Massachusetts Democrat John Kerry, who received $110,000.

Since the 1990s, Fannie Mae and Freddie Mac have been run by Democrats. From 1991 to 1998, Fannie Mae was led by James Johnson, a long-time aide to former Democrat Vice President Walter Mondale. Johnson made headlines in 2008 when Barack Obama picked him to chair his vice presidential selection committee. He had to resign in disgrace when it was revealed he had taken out at least five below-market real estate loans totaling more than $7 million from Countrywide Financial Corporation.

Johnson’s successor as head of Fannie Mae, Franklin Raines, had previously served as a budget director to President Bill Clinton. From 1995 to 2005, Raines pocketed nearly $100 million in compensation before leaving because of a scandal involving profit and loss reports manipulated to increase his annual bonuses.

Another well-known Democrat, Jamie Gorelick, served as vice chair of Fannie from 1998 to 2003. Prior to that, she was Janet Reno’s Deputy Attorney General during the Clinton years, when the Clinton Justice Department was aggressively compelling banks to make subprime loans to unworthy borrowers.

And Rahm Emanuel, current White House Chief of Staff, also served as a director at Freddie Mac. Most Americans are not aware that Fannie and Freddie, while lining the pockets of politicians, also funnels hundreds of millions of dollars to a host of leftist groups and causes promoting the Democrat agenda.

The grantmaking arms of Fannie and Freddie – specifically the Fannie Mae Foundation and the Freddie Mac Foundation – gives tens of millions of dollars each year to predominantly left-wing organizations such as the American Civil LibertiesUnion; the NAACP and National Urban League;pro-illegal immigration groups like the Mexican American Legal Defense and Education Fund, and the National Council of La Raza; pro-Democrat community activist groups like ACORN; and former president Jimmy Carter’s Carter Center.

The Republicans were not oblivious to Fannie and Freddie’s problems. Bush’s 2001 budget called runaway subprime lending a “potential problem”and warned of “strong repercussions in financial markets.” In July 2003, Senators Chuck Hagel (R-NE), Elizabeth Dole (R-NC) and John Sununu (R-NH) introduced legislation to address regulation of them.

The bill was blocked by the Democrats. 30 In September 2003 Bush’s Treasury Secretary, John Snow, proposed what The New York Times called “the most significant regulatory overhaul (of Fannie and Freddie) in the housing finance industry since the savings and loan crisis a decade ago.”

Did the Democrats in Congress welcome reform? Here’s how Barney Frank (D-MA), the ranking Democrat on the Financial Services Committee,responded:

“I do not think we are facing any kind of a crisis. That is, in my view, the two government sponsored entities we are talking about here, Fannie Mae and Freddie Mac, are not in crisis…. I do not think at this point there is a problem with a threat to the Treasury…. I believe that we, as the FederalGovernment, have probably done too little rather than too much to push them to meet the goals of affordable housing and to set reasonable goals.”

In 2005, Republican Senators Hagel, Sununu, Dole, and later John McCain reintroduced legislation to once again address regulation of Fannie and Freddie. In essence, the bill would have required Fannie and Freddie to eliminate their investments in risky subprime loans. According to Kevin Hassett, writing in Bloomberg.com, “if that bill had become law, then the world today would be different.”

But the legislation didn’t become law for a single reason: Democrats opposed it on a party-line vote in the Senate Banking Committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democrat opposition, couldn’t even get the Senate to vote on the bill.

Had the bill passed in 2005, the mortgage meltdown would have been far less intense. In 2005, 2006 and 2007, approximately $1 trillion of these terrible mortgage loans were funded by Fannie and Freddie at a time when housing prices were at their highest. When housing prices fell dramatically, losses from those mortgages turned out to be tremendous.

Bottom line: if Fannie Mae and Freddie Mac weren’t buying these subprime loans, the market for them would likely not have existed. Rep. Artur Davis (D-AL) now admits Democrats were in error:

“Like a lot of my Democratic colleagues, I was too slow to appreciate the recklessness of Fannie and Freddie. I defended their efforts to encourageaffordable home ownership when in retrospect I should have heeded the concerns raised by the regulator in 2004. Frankly, I wish my Democraticcolleagues would admit when it comes to Fannie and Freddie, we were wrong.”

**********************************
Edward R, Murrow once eloquently stated: "Our major obligation is not to mistake slogans for solutions." I do not intend to tell anyone who to vote for in November. However, I do ask that any voter fulfill their major obligation to be as informed as possible and not be easily swayed by shallow slogans like Hope, Change, Winning The Future, Forward, etc.

Understand the root causes of our problems like Mr. Bernstein does above relative to the current economic situation we are stuck in. It takes some work but both our personal and national futures depend on understanding the motives of our usually selfish politicians and how their actions have caused so much pain and agony. Unless you understand the root causes and causers of our problems, we will never find the solutions to resolve them.

Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at:

www.loathemygovernment.com

It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.

Please visit the following sites for freedom:

Term Limits Now: http://www.howmuchworsecoulditget.com
http://www.reason.com
http://www.cato.org
http://www.bankruptingamerica.org
http://www.conventionofstates.com
http://www.youtube.com/watch?v=08j0sYUOb5w

The More Things Politicians Change The More They Stay The Same, Despite Spending Trillions Of Dollars, Part 1; Education, Housing, And Illegal Drugs

One of the problems I have always had with the American political class is that even though we give them a very large percentage of our wealth each year, our politicians never seem to resolve any of the major issues that we give them the money for. Failing public schools, escalating health care costs, rising energy costs, failed immigration policies, etc., nothing ever gets resolved.

President Obama is calling for nearly a $4 TRILLION Federal government budget for the next fiscal year without any concrete plans or strategies to fix any of our major problems with that $4 TRILLION. By the way, that $4 TRILLION comes out to almost $11 billion a DAY, or a half a billion an HOUR, over $7 million a MINUTE. For that level of spending, we should not have any problems in our lives at all.

But we do have major problems in our lives and those major issues have been with us for decades despite TRILLIONs and TRILLIONs of taxpayer dollars spent in the hope that they would get resolved. Furthermore, the political class has rigged the election processes so that incumbent politicians continue to get reelected even though they are always a failure while serving in office.

Today and tomorrow we will look at a series of graphs and pictures that vividly illustrate how inept and useless our politicians have been over the past few decades despite the oppressive tax burden they now subject us to.

1) Nowhere has the political class failed the nation more then in the education of our kids. Every year we pay more and more at both the local and Federal government level to educate our kids with dismal results, relative to kids around the world, and our own national standards. Consider the following graph of educational attainment and the amount of resources we have put towards educational attainment over the past few decades (click on the graph for a larger view):

While the amount of money spent on education over the years is up almost 200% and the number of employees in the education field is up almost 100% over the past 42 years, math, reading, and science scores have barely budged over the same time frame. This is not a good investment for our money despite a Federal government Department of Education that spends tens of billions of dollars every year in its budget for apparently no results.

2) Back in the 1970s, the Washington political class under Jimmy Carter decided that it would be a good idea if it was easy for every American to own their own home, even those in the lower income brackets. That resulted in the passage of the Community Reinvestment Act, a piece of legislation that directly led to the Great Recession of 2008. For a detailed assessment of that conclusion, please go to the following link:

http://loathemygovernment.blogspot.com/2012/05/who-really-caused-great-recession-part.html

Since the Carter administration, we have spent trillions of dollars supporting the home purchases of lower income Americans and the subsequent bail outs of Fannie Mae and Freddie Mac. 

For all of this expense and the trillions of dollars of economic damage from the Great Recession, how successful was the Federal government in increasing home ownership? Consider the following graph:

Yes, back in the Carter administration, the percentage of Americans who owned their own home was about 65%. About 40 years and trillions of dollars later, the percentage of Americans who own their own home is…. about 65%. 40 years and trillions of dollars later we are right back where we started. Pathetic.

3) Over 40 years ago, the Nixon administration declared a “war on drugs.” If that war had been successful, than after trillions of dollars and 40 years, one would have hoped that the political class would have finally won that war resulting in two situations: 1) the amount of money spent in this country on illegal drugs would now be close to zero and 2) the number of citizens in jail for using illegal drugs would have been dropping significantly as the war was being run and won.

However, just the opposite happened, not unexpected since the exact opposite usually happens when politicians are involved. According to a recent study by the Rand corporation, every year, Americans spend about $109 billion on all types of illegal drugs. You cannot say you have won the war on drugs when the illegal market for illegal drugs is still over $2 billion a week.

And to our second point as far as drug abuser prison populations, over time the number of citizens being jailed for using illegal drugs has been growing substantially:



When the war on drugs began, there were less than 50,000 Americans in jail for illegal drug violations. Four decades later, there are about ten times as many Americans in jail for illegal drug violations. If the war on drugs had been successful, one would have expected the number of jailed Americans for drug violations would be less than when the war started. Not the case.

This is not a commentary on whether or not drugs should be decriminalized or legalized. It is a simple observation that we still have a drug addiction problem in this country that the war on drugs has turned into a criminal problem while wasting trillions of dollars in the process.

We will finish this discussion of political class failure tomorrow. Today we learned that despite spending trillions of dollars, our kids are still undereducated, the housing market is right where it was forty years ago, and the war on drugs has made the situation at least ten times worse than when it began under Nixon. 

You have to really try to be this incompetent for so long. But somehow the political class in Washington has managed to exceed all standards of ineptness and we still have more to cover tomorrow.

Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at:

www.loathemygovernment.com

It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.

Please visit the following sites for freedom:

Term Limits Now: http://www.howmuchworsecoulditget.com
http://www.reason.com
http://www.cato.org
http://www.robertringer.com/
http://www.youtube.com/watch?v=08j0sYUOb5w

March, 2013 Political Class Insanity, Part 4: Bottled Water Idiocy, Community Reinvestment Act, And More

This is the fourth in what is likely to be a record six post series of monthly political class insanity. In the three previous posts we reviewed such insanity as to what a corrupt U.S. Congressman (Jesse Jackson, Jr.) spends illegally obtained money on, how the political class flushed half a trillion dollars down the sink hole that is Afghanistan, how some politicians are using a Ulysses S. Grant era law to protect their mining company cronies, and other equally idiotic political doings.

Today’s latest insanity review starts with items from the April, 2013 issue of Reason magazine, a great publication in support of freedom and in opposition to political insanity:

1) Politicians and voters in Concord, Massachusetts voted to enact a law this past January 1, 2013 that banned the sale of water bottles less than one liter in size. The effort was a silly attempt to reduce the use of plastic and encourage the use of water from taps to improve the environment. Concord businesses caught selling these horrific bottles of water were subjected to fines.

So what has been the result of the environmental and political activist effort that restricted freedom of choice? Residents of Concord simply drive over to other nearby cities to purchase the bottled water in convenient sizes. Thus, the use of plastic bottles is not significantly reduced, if reduced at all, and the environment takes a hit as people burn more gasoline to drive to get their bottled water in convenient sizes. All the law did was reduce the revenue stream of local Concord businesses. Insanity.

2) The justification for the Obama administration to spend over $800 billion to stimulate the economy during the Great Recession is that somehow when government spends a dollar it miraculously results in more than a dollar of incremental economic growth. This so-called “multiplier effect” is measured to a breakeven basis of $1.00.

For example, if a government stimulus program had a multiplier effect of $1.50 it would say that the economy got a $1.50 increase in economic activity for that one dollar government investment, a 50% return and a good thing. If a government stimulus program had a multiplier effect of only $.50 it would say that for every dollar spent by the government, the economy got only a $.50 increase in economic activity, a net loss of $.50, a bad thing.

The flawed, theoretical reason behind this type of economic reasoning is that somehow the Federal government can take taxpayer wealth and spend it more efficiently than taxpayers. Given that antics, idiocy, and insanity of people like Harry Reid, Joe Biden, Nancy Pelosi, et al, this is seems like a very foolish assumption.

And now there is hard data to actually prove this is a foolish assumption. A major study by economists from the Federal Reserve Bank of St. Louis, the University of California at San Diego, and the Bank of Canada have definitively proven that in the United States, that government stimulus spending during recessions has a negative effect on the economy, i.e. the multiplier effect is substantially below $1.00.

This study entailed detailed analysis of economic activity from 1890 to 2010 and measured stimulus effects across various economic components including differing levels of unemployment. Their findings were worthy enough to be presented at the January meeting of the American Economic Association.

What were their findings based on real data and not political rhetoric:

• During hard times when unemployment was below 6.5%, government economic stimulus spending had a multiplier effect of only $.63 to $.78. In other words, in these periods, as much as $.37 was lost for every dollar spent.
• The interesting finding was that for unemployment levels higher than 6.5%, the multiplier effect was even worse, between $.54 and $.64. In other words, the higher the unemployment rate, the worst return the economy got on government stimulus spending.
• The authors’ main conclusion: “We find no evidence that multipliers are higher during periods of slack in quarterly U.S. date from 1890 to 2010.” In other words, the $800 billion that Obama spent in his economic stimulus program was an economic bust.

But Harry Truman could have told him that based on Truman’s handling of the economy after World War II. He proved conclusively that government spending does not make for a healthy economy, government shrinkage is the best way to grow an economy, the proof and details of which can be found at the following link:

http://loathemygovernment.blogspot.com/2012/08/economic-policy-why-truman-got-it-right.html

3) In 2008, the Federal government was given unprecedented leeway to to secretly monitor Americans’ electronic communications without the fuss of getting a warrant and proving probably cause as a result of the Foreign Intelligence Surveillance Act or FISA. This law is an obvious intrusion and violation of the Fourth Amendment of the Constitution, a detail that was lost on those in Congress who voted for the legislation.

But the law recently came up for renewal and four Senators actually took the heroic effort to reduce the intrusion into our rights. Unfortunately, the common sense ideas form these four Senators were soundly defeated and this atrocity against freedom was renewed in the Senate by a vote of 73 to 23.

4) We have already proven in a previous post the Community Reinvestment Act (CRA), which was passed during the Presidency of jimmy Carter and used and abused by Democratic politicians since then, was the primary cause and driver of the Great Recession:

http://loathemygovernment.blogspot.com/2012/05/who-really-caused-great-recession-part.html

Further verification of this conclusion has been proved by an article in Reason which summarized the analyses and findings of trained economists from Harvard, the Massachusetts of Technology, and the University of Chicago who took a detailed look at the impact and history of the Community Reinvestment Act.

Besides looking at the default rates of banks that made a lot of questionable mortgage loans as a result of the CRA, the article also documents how the Federal government, via Fannie Mae, was actually looking for and encouraging questionable loans via CRA requirements. In 2000, Fannie Vice Chairman Jamie Gorelick told banks that “We [Fannie] want your CRA loans because they help us meet our housing goal.” These CRA loans included mortgages with low down payments and questionable underwriting, i.e. bad loans.

Since 2000, Fannie Mae and its sister Federal entity, Freddie mac, have racked up well over $100 billion in taxpayer bailout expenses, Gorelick was forced to resign amid accounting improprieties at Fannie, the housing market collapsed, the Great Recession started, and the economy never really recovered.

Thus, politicians messing around with things they have no expertise in, mortgages, banking, and economics resulted in the worst economic disaster since the Great Depression, the effects of which (higher national debt, persistently high unemployment, anemic economic growth, etc.) that will be with use for years and decades to come.

Depressed yet after these four posts? Well, the insanity will continue to tomorrow where we will hear the actually words of the Washington political class, words that will confirm that the woes of the country and the insanity we as Americans endure every day are almost totally the result of the people that sit in Congress and the White House.

Their inane actions, their incompetence, their idiocy are the reasons why the country is in the state it is in today. Fortunately, we will also prescribe a set of steps that stop their voices of ineptness and fix what the ails the country, simply and easily with minimal pain to most Americans.