How the Feds Tanked Our Economy

The abscess has now exploded, and infected the world economy. The worthless securitized mortgages keep collapsing the stock market, and investors are running to the commodity markets to play their speculative non-productive paper economy games. And that, along with a dollar that is shrinking like a cheap T shirt, are causing food and oil prices to squeeze already-strapped consumers, and igniting the fumes produced by the inflationary practices of the Fed into an economic fireball.

To those who did not have blinders on, it was clear that the blight of toxic mortgages was beginning to deflate the real estate bubble in New England and the Northeast as early as 2006. The flip flopping property game had stopped, and the real estate pundits in the Sunday newspapers were pontificating on how it was now a buyer's market.

About this time Ben Bernanke decided that handing out the popular unverified income mortgages, and lenders' lack of concern about whether borrowers would be able to manage the terms of the loan once the introductory teaser rate expired, might be a problem.

Just like when the banks ran out of credit worthy persons to send credit cards to, they started pushing plastic on impoverished college students, by the turn of the century lenders had run out of worthy mortgage prospects, and started giving these liar and guaranteed-to- default mortgages.

It was all necessary, because it was mortgages which were fueling the economic expansion, although, as we now know, it was an economy built upon a house of cards, fortunes made through nonproductive trading, and homes which now provide shelter for the nation's crack users.

In the old days, when local banks held held onto their mortgages, they never would have lent this money out. But nowadays they sell the mortgages to such government sponsored organizations as Fannie Mae, where they are bundled, spliced and diced—then traded in the security markets.

When it dawned on Bernanke that this was all a pyramid scheme, he issued some guidelines and proposed regulations tightening up lending practices.

Seeing the possibility of a crack down on their business model, of originating worthless mortgages, Countrywide, led by the perpetually tanned Angelo Mozilo , announced they were going to reorganize into a Savings and Loan so they would no longer be under the control of the Comptroller of the Currency, and could just ignore the Fed's born again guidelines on safe lending practices.

Of course, by then it was too late anyway, the horse was out of the barn, But long before this, there were people that knew the predatory lending practices had to stop. These were the officials in every one of the states, who have the duty of regulating the activities of banks and lenders.

As early as 2001 the various attorney generals in the states were attempting to crack down on the mortgage originators, through such legislation as the Georgia Fair Lending Act.

Wall Street went ape shit. And the Comptroller of the Currency , promulgated a regulation asserting that it had sole jurisdiction over the mortgage business , and then chose to do nothing to stop the paper bubble.

Each and every state joined together in a lawsuit to regain control over the lenders within their boundaries from the Comptroller of the Currency. It went to the Supreme Court. In March ,2007 the Supremes, as they almost always do, came down on the side of the Federal government ( Stevens, Scalia and Roberts dissenting, Thomas recused himself).

The current economic tank-out and credit crisis is, in large part, another result of the Federalism forged by the Republican Party after the Civil War. As soon as the Radical Republicans, who actually thought the war was about slavery, were thrown out, the party got down to business—which is the use of the Federal government to protect the interests of Big Business.

When the Republican Party bloviates about limited government and minimal regulation, they don't care about small entrepreneurs, who used to be the back bone of our economy (indeed the Republican creed is Small Business Administration guaranteed loans are economically disruptive and an unwarranted extension of big government). Rather, the concern is always the promotion and non-regulation of such things as Big Oil and the National Banks—the Federal government will not regulate them ( to the extent they can politically get away with it) and they won't let the states do it at all.

As always happens when there are situations like this, the Congress is holding hearings, advocating increased regulation by Big Brother, sending a few scapegoats to prison,and considering massive federal bailouts, which we can't afford and are economically disastrous.

Just the same, people are going to loose their shirts, others their jobs or businesses, and small banks will go belly up.

Worst of all, the backlash feeds the progressive agenda, which promotes an all powerful central government as our only salvation.

The Shakespearian irony is, none of it would have happened, if someone had bothered to read the constitution, and kept the Federal government's nose out the whole thing in the first place, and let the governments, which are closest to the people, do their duty. God knows the federal government does not have a monopoly on good sense.

But, it is quite appropriate that , along with the Bubble Rubble, this era now ends with the loan sharks driving up the price of oil, and the rest of us filling our tanks courtesy of Payday Loan.