Wednesday, October 01, 2008

The Founders, Fannie, Freddie and the Congress

Navigating among the founders is always a perilous business, most especially for commentators who quote them to give heft to their own views.

Just when you are thinking that John Adams is a crusty old republican who does not translate well into a modern idiom, he tantalizes you with this tasty morsel on lawgivers: “One useless man is a tragedy. Two are a law firm. More are a congress.”

We like to think of Thomas Jefferson, the American herald of liberty, as a friend of the press, until we remember that he was soundly beaten up by the papers of his day in one of the most vicious American campaigns in history and nursed a grievance poured out in letters that, he surely knew, would see the light of day and ring out through the ages: “I do not take a single newspaper, nor read one a month, and I feel myself infinitely the happier for it.” And again: “The man who reads nothing at all is better educated than the man who reads nothing but newspapers.” And again: “I read no newspaper now but Ritchie's, and in that chiefly the advertisements, for they contain the only truths to be relied on in a newspaper.”

One wonders what Jefferson or Adams might have thought of the strange goings on in the US Congress in response to the recent financial melt-down of the Wall Street casino.

Jefferson, every libertarian’s beau ideal -- “Never spend your money before you have it” and “Never trouble another for what you can do for yourself” – would have been rightly appalled at the congress’ recent raid on the public purse. His view of banking institutions was not a happy one: “I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.”

And Adams would not have been surprised that congress, full to the brim with lawyers, has offered in its tragic bumbling incontrovertible proof of the truth of his apothegm.

Mortgage loans given to people whose financial circumstances would not allow them to pay them off is at the core of the present crisis. This eventuality was made possible by an administration and congress that wanted to make available to people sweat free credit for home mortgages. And so enabling bills were written and ushered through the congress by well meaning legislators, many of them lawyers, who put regulatory thumb screws on the bankers urging them to parcel out mortgage loans to people who could not pay them off. Wall Street gave a helping hand by constructing dubious financial instruments that were sold to people who would not ordinarily buy the Brooklyn Bridge from snake oil salesmen. So long as housing continued to increase in value, at least on paper, the Ponzi scheme chugged merrily along. When the housing bubble burst, it all came crashing to the ground. The Congress just now has glued together some of the broken pieces. The marketplace itself has solved at least one of the problems that generated the crisis. If Fannie May and other renegade lenders were “too big to fail,” then the problem all along was: a) they were too big, and b) they were not permitted to fail.

Not any more.

In their pre-election frenzy, the boys and girls in congress are now thumping their chests and shouting out to anyone who cares to listen how useful they have been. But where was the useful congress, one may ask, in 2001, when it became apparent that Fannie Mae was becoming too big to fail? And where was the useful congress in 2004, when some anxious Republicans issued clear warnings against Fannie and Freddie?

When Jefferson retired from public service, he wrote to a friend, “I have the consolation of having added nothing to my private fortune during my public service, and of retiring with hands clean as they are empty,” a badge of honor that those whose campaign coffers were stuffed with contributions from the financiers they have bailed out will never be able to wear.
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