Monday, October 27, 2008

Obama vs. McCain: Whose Economic Plan is Best?

Currently the United States is undergoing one of the worst financial crises of the last hundred years. Since the crisis is occurring in the middle of a presidential election, it is undoubtedly helping the opposition party challenger, Barack Obama. Obama and McCain have both presented strikingly different plans for recovering from the crisis.

Obama’s plan is centered on a middle class tax cut with increased taxes for taxpayers earning more than $250,000 for couples or $200,000 for individuals (according to Americans for Tax Reform). This plan is the wrong prescription for the economy and is likely to make the problem worse.

In fact, Obama’s income tax hikes are only the starting point for his tax increases. He would increase the capital gains tax by 13%, which could affect people who own stocks in their 401(k) plans or who sell their homes. Obama would also increase the dividend tax on stocks, which also affect 401(k) owners. While McCain would phase out the Alternative Minimum Tax (AMT), which snares increasing numbers of middle class taxpayers, Obama would leave it intact. Obama would also reinstate the Death Tax, which under current law will be reduced to zero by 2010 and then jump to 55% in 2011. Obama also supports increasing Social Security taxes on higher income taxpayers. Obama would also leave the US corporate tax rate at 35%. This is one of the highest corporate tax rates in the world; only Japan and Germany are higher. Additionally, Obama has also proposed a cap-and-trade tax system on carbon emissions and a windfall profits tax on oil companies. Both would lead to higher energy prices for consumers.

While Obama does propose cuts for the middle class (many in the Democratic congress do not agree with this aspect of his plan), his tax increases would affect the segment of the population that drives the economy. The top 5% of taxpayers includes many small business owners. Over half of the nation’s workforce is employed by small businesses. If these companies have to pay more in taxes, they will have less money to pay employees. That will translate into fewer jobs. Additionally, the top 5% of taxpayers already pay 60% of all taxes. This figure is up from 56% before Bush’s tax cuts.

History shows us that low tax rates typically lead to economic growth. In the United States, there have been four cuts in tax rates over the past one hundred years. These cuts took places during the administrations of Coolidge and Harding, Kennedy, Reagan, and George W. Bush. In each case, the economy grew, jobs were created, and tax revenues actually increased. This can also be seen around the world. When Ireland cut its corporate tax rate to 15%, it became one of the fastest growing economies in Europe. Eastern European nations such as Russia, Slovakia, Serbia, Ukraine, Romania, and Georgia have all used low flat taxes to stimulate their economies.

On the contrary, increasing taxes slows the economy and actually leads to a smaller Gross Domestic Product and fewer tax revenues. FDR’s tax increases and regulation in the 1930s made the Great Depression in the US last much longer than in many other countries. In 1920, a severe depression had lasted only a year due to President Harding’s cuts to federal taxes and spending. George W. Bush got similar results with tax cuts in 2001.

A more recent example of the folly of tax increases can be found in the state of Michigan. In 2007, Governor Jennifer Granholm enacted the state’s largest tax increase in generation in order to make up a budget shortfall. The taxes were planned to generate about $1.3 billion in new revenues. Instead, tax receipts are far below projections and Michigan entered a statewide recession two years before the rest of the country.

The other side of the coin is that Barack Obama has proposed numerous new spending programs. These costly programs include massive expenditures on healthcare, the environment, a national service plan, college tuition assistance, and many other programs. The total for Obama’s new spending is close to $300 billion per year according to the National Taxpayers Union. Such massive new spending programs would rapidly expand the deficit and increase the federal debt.

Obama and the Democrats are also unlikely to make serious reforms to the nation’s mortgage markets. Many of the problems that we face today can be traced to the Community Reinvestment Act of the Carter era, which required banks to loan money to low-income borrowers. The program was expanded under President Clinton, who directed Fannie Mae and Freddie Mac to increase their holdings of subprime loans.

Fannie Mae and Freddie Mac made large campaign contributions to congressional Democrats in exchange for thwarting Republican attempts at oversight. The two top recipients were Senator Chris Dodd, now chairman of the senate committee that oversees banks, and Barack Obama, who received more money in four years than most members received in twenty. Franklin Raines and Jim Johnson, former CEOs of Fannie Mae and Freddie Mac, have worked extensively on Obama’s campaign.

In contrast, John McCain plans to repeal the Alternative Minimum Tax and reduce corporate tax rates. McCain wants to simplify the tax code so that both individuals and companies will save on accounting costs. John McCain also cosponsored legislation to increase oversight of Fannie Mae and Freddie Mac in 2005.

McCain also has a long record of opposing government waste and pork barrel spending. This makes him an ideal candidate to tackle the growing problems of Social Security and Medicare. Medicare is projected to be bankrupt by 2019 and Social Security by 2050. Changes must be made immediately to avoid massive new taxes or draconian benefit cuts to save both programs later.

Barack Obama’s economic policies take the United States in precisely the wrong direction. His numerous tax increases and expensive new spending programs have been proven to restrict economic growth in the past. To further restrict economic growth when the country is already in a recession would almost certainly prolong and deepen our current economic crisis.


Saturday, October 25, 2008

Visions of Isa: Muslim Converts to Christ

"And it shall come to pass afterward That I will pour out My Spirit on all flesh; Your sons and your daughters shall prophesy, Your old men shall dream dreams, Your young men shall see visions.
Joel 2:28 (NKJV)

Since the time of Mohammed, there has been unease between the great religions of the world, Judaism, Christianity, and Islam. Wars have been fought between surrogates of the great faiths and they have historically remained ethnically distinct, with few exceptions.

That is now changing. Even though Christian missionaries have preached the Gospel to the Muslim world for hundreds of years, they have had few converts. Over the past twenty years, that began to change.

Over the past few decades, increasing numbers of Muslims have begun to have supernatural dreams and visions of Isa, as Muslims call Jesus Christ. These dreams affect a cross section of Muslims. Young, old, men, women, and even fanatics have reported the dreams. In one survey of Muslim converts to Christianity, 25% of respondents report having dreams or visions of Christ before their conversion. Interestingly enough, 45% report having dreams or visions after their conversion.

Bill Bright, director of Campus Crusade for Christ’s evangelism efforts is the Middle East and North Africa, reports that the group has received thousands of letters from Muslims telling of dreams in which Isa appears and tells them “I am the way.” They then contact Campus Crusade, which broadcasts a radio program throughout the area, to find out who this Isa is.

One member of the Campus Crusade staff is a woman who was a former Muslim radical. While in prison for her activities, Isa-Jesus appeared to her and explained redemption and the Gospel to her. She became a Christian and now spends her time working to tell other Muslims about Isa.

While there are a wide variety of these dreams and visions, most seem to fall into two categories. The first is preparatory dreams and visions. These might instruct the dreamer to visit a Christian or seek out a copy of the Bible. Some dream of Isa telling them how to obtain forgiveness and redemption. In some dreams, Isa saves their lives or frees them from bondage. Some even dream of Hell.

In one case, an Indonesian imam made a hajj (pilgrimage) to Mecca. While on a bus tour in Mecca, he talked with the driver, who told him that Allah wanted to have a relationship with him and that he should not focus on rituals such as the hajj. After a stop, he returned to the bus to find a different driver.

After returning to his home in Indonesia, the man was still perplexed by his encounter with the bus driver. One day, while visiting the home of a local Chinese Christian, the man noticed a picture of the bus driver on the wall. The picture was Isa-Jesus. The man became a Christian. (

The second broad category is that of empowering dreams and visions. These dreams give the dreamer strength to endure persecution and trials. When Muslims convert to Christianity, they are often disowned by their families and friends, beaten, arrested, tortured, and sometimes even killed. These empowering dreams and visions help them to cope with these trials.

It is hard to determine just how many Muslims are converting to Christianity. In some countries, the number of believers in Christ is still in the single digits. In others, they number in the hundreds of thousands. In Iran, there were about 200-300 Muslim converts when the Islamic revolution took place in 1979. Today, Iranian Christians International estimates that there are more than 70,000 Iranian Christians, not including secret believers. Morocco had only 400 Christians in the 1990s. Today that number has more than doubled to 1000.

One of the most prominent Muslims to convert to Christianity is Mosab Hassan Yousef, the son a leader of the Hamas terrorist organization. Yousef, while not reporting any dreams or visions, was troubled by many aspects of the Islamic religion. When he spent time in an Israeli prison, he became disillusioned by the harsh treatment and torture that Hamas members inflicted on their own Palestinian people. Yousef studied the Bible and became convinced that it was the word of God.

As noted earlier, dreams and visions play a role in the conversion of only about 25% of Muslim-born Christians. What convinces the other 75% that Isa is the Christ? The most common answer is the lifestyle of Christians. Many note that there is no gap between the morality that Christians preach and the lifestyle that they live. Others noted that Christians treat women with respect and do not practice violence as many Muslims do.

Next, Muslim converts say that the power of God in answering prayers, healing, and driving out demons was important in their conversions. There are many cases of healing following prayer after the failure of other methods. In one case, a Nigerian witch doctor reportedly cursed a man considering converting to Christianity. The man became insane and was deserted by his family, but after praying to Jesus he was healed.

Many converts, such as Yousef, were also dissatisfied with the brand of Islam that they experienced. They note that the Koran focuses on punishment and lacks a message of love and forgiveness. Many also point to harsh Islamic law and Islamic militancy as pushing them towards the loving God of Christianity. Some Muslims are attracted to Isa before they know of Christianity since the Koran teaches that Isa is a prophet and healer.

Christian missionaries, such as Brother Andrew of Open Doors, say that one of the most important things that Western Christians can do for the emerging Muslim-convert church is to pray. These Christians are under constant pressure and many are attacked by local mobs or harassed by authorities. In addition to adding souls to God’s kingdom, they note that, as a growing Christian church in Eastern Europe played a central role in the fall of communism, a growing church in the Islamic world may help bring peace to the Middle East.

The unprecedented conversions, dreams and visions that the Islamic world is experience may be hard for jaded westerners to believe. Unbelievable or not, God is actively working around the world. The Christian church of the free world should join in his work.

"Look among the nations and watch-- Be utterly astounded! For I will work a work in your days Which you would not believe, though it were told you.
Hab 1:5 (NKJV)

Testimonies and Stories of Muslim Converts:


Tuesday, October 21, 2008

Should You Vote for Obama?

If you believe that the United States can tax itself into prosperity, vote for Obama.

If you believe that we can simultaneously create jobs while heavily taxing those who create jobs, vote for Obama.

If you believe that a person can associate with a seemingly endless stream of anti-American activists over the course of twenty to thirty years and not only not be affected by their viewpoint, but not even be aware of it, vote for Obama.

If you believe that the 40% of Americans who already do not pay taxes should get a tax cut (translation: a bigger tax refund), vote for Obama.

If you believe that banning the private use and ownership of firearms is a “reasonable restriction” on the second amendment, vote for Obama.

If you believe that abortion should be legal with no restrictions, vote for Obama.

If you believe that you don’t pay enough taxes, vote for Obama.

If you believe that a senator can take over $125,000 from Fannie Mae and Freddie Mac (more than any other member of Congress save one, even though he has only served four years in the senate) and it will not affect his objectivity on reforming and overseeing these mortgage companies, vote for Obama.

If you believe that most traditional Americans are bitterly clinging to guns and religion, vote for Obama.

If you believe that the government should force banks to loan money to people with poor credit, vote for Obama.

If you believe that opposing same-sex marriage is akin to racism, vote for Obama.

If you believe that we can solve the problem of international terrorism by opening a dialogue, vote for Obama.

If you believe that America wasn’t great until you decided to run for office, vote for Obama.

If you believe that gas will be cheaper if we tax oil companies more, vote for Obama.

If you believe that increasing oil supplies will have no effect of the price of gasoline, vote for Obama.

If you believe that taxing carbon will have no effect the economy, vote for Obama.

If you believe that experience and knowledge don’t matter as much as charisma and hope, vote for Obama.

If you believe that making students into political radicals (through programs such as the Annenberg Challenge) is more important than teaching them subjects such as math and science, then vote for Obama.

If you believe that the government can run the healthcare industry more cheaply and efficiently than doctors and insurance companies, vote for Obama.

If you believe that Jesus was a community organizer, vote for Obama.

If you believe that Iraq is not important in spite of what Osama bin Laden says, vote for Obama.

If you believed that the surge wouldn’t work in Iraq, but is needed in Afghanistan, vote for Obama.

If you believe that Al Qaeda or Iranian radicals wouldn’t fill a vacuum left by the US in Iraq, vote for Obama.

If you believe that healthcare is a constitutional right, vote for Obama.

If you believe that it is ethical to take money from other people to pay for your health insurance, vote for Obama.

If you believe that a trillion dollars worth of new spending is a good thing, vote for Obama.

If you believe that ACORN is a valuable resource in spreading political awareness, vote for Obama.

If you believe that banks should be pressured by community groups such as ACORN to loan money to people with poor credit, vote for Obama.

If you believe that ACORN should receive federal money even though they have perpetrated voter fraud on a massive scale in the last several elections, vote for Obama.

If you believe that more government regulations are the answer to most of our national problems, vote for Obama.

If you believe that our economic problems are caused by corporate greed and not government intrusions into the market or massive deficit spending, vote for Obama.

If you believe that social programs are more important than defense spending, vote for Obama.

If you believe that the US should borrow more money from nations like China to fund entitlement programs, vote for Obama.

If you are reassured by the phrase, “I’m from the government and I’m here to help,” vote for Obama.

If you believe that the Democratic Party can suspend the laws of economics, vote for Obama.

If you believe that the US can make socialism work where all others have failed, vote for Obama.

If you think that Truth Squads, which intimidate media outlets that present information unflattering to Obama, are a good idea, vote for Obama.

If you think that America needs a domestic national police agency with a budget similar to that of the military, then vote for Obama.

If you agree with the political views of most Hollywood celebrities, vote for Obama.

If you enjoyed the Carter years and would like to revisit them, vote for Obama.

If you believe that the government’s plan to increase bio-fuels, which also increased food prices by 75%, worked well, vote for Obama.

If you believe that the government should tell you what kind of light bulb to use, vote for Obama.

If you believe that the government should force the auto companies to produce cars like the Prius, which are smaller and more expensive than comparable cars, vote for Obama.

If you believe the government, not private companies, creates jobs, vote for Obama.

If you believe that we should have judges who rule based on their personal beliefs rather than written law, vote for Obama.

If you believe that our judges should apply the laws of other countries to American courts, vote for Obama.

If you believe that the most leftist member of the US Senate is capable of forging bipartisan unity, vote for Obama.

If you believe that the government can spend your money more wisely than you can, vote for Obama.

If you believe that next year, your income level won’t be considered “rich,” vote for Obama.

If you believe that character is not important, vote for Obama.

If you believe that the party of higher taxes can suddenly become champions of tax cuts, vote for Obama.

If you believe that allowing tax cuts to expire is not a tax increase, vote for Obama.

If you believe that giving tax refunds to those who don’t pay taxes is not welfare, vote for Obama.

If you believe that the government should be involved in wealth sharing, vote for Obama.

If you believe that the government bureaucracy is more efficient than private enterprise, vote for Obama.

If you believe that Barack Obama is your new bicycle, vote for Obama.

If you believe that any change is good, vote for Obama.

If you believe that Iran armed with nuclear weapons is not a problem, vote for Obama.

If you believe that we should invade Pakistan, vote for Obama.

If you believe that liberal Democrat control of the presidency, along with filibuster-proof majorities in both houses of Congress, is a good thing, vote for Obama.

If you believe that more government is the answer, vote for Obama.

If enough people vote for Obama, you’ll get the government that you deserve.

If, on the other hand, you believe that, as President Lincoln said, “America is the last, best hope of mankind,” and that the founders of our country were wiser than our current crop of politicians, don’t vote for Obama.

Sunday, October 12, 2008

1970s Déjà vu

The political and economic situation of 2008 resembles that of the 1970s in several respects. From an unpopular president to an oil-induced recession to a national malaise, the resemblances are uncanny. We should take care to learn from the past in order to avoid the same mistakes.

The most obvious similarity between 2008 and the 1970s is the comparison between the wars in Iraq and Vietnam. In both cases, we aided a domestic government in fighting off an insurgency. In both cases, we used the same ineffective search-and-destroy strategy for years while protests mounted at home.

Also in both cases, the US shifted to a strategy of clear-and-hold. In Vietnam, General Creighton Abrams replaced General Westmoreland as commander of US forces in Vietnam in 1968. Under Abrams’ strategy, US forces cleared areas of Viet Cong and North Vietnamese regulars, and then South Vietnamese Territorial Forces then garrisoned the liberated territory.

By 1972, John Paul Vann, a senior US official in Vietnam, was able to say “We are at the lowest level of fighting the war has ever seen…. The program of Vietnamization has gone kind of literally beyond my wildest dreams of success.”

When the North Vietnamese Army launched a conventional invasion of the south in what became known as the Easter Offensive, the Army of the Republic of Vietnam (ARVN), with US assistance, was able to hold back the NVA. When South Vietnam signed the Paris Accords in 1973, President Nixon promised that the US would intervene if the north resumed the war, that the US would provide material assistance to South Vietnam, and that the US would provide financial assistance to the south.

When North Vietnam launched a second invasion in 1975, none of these promises were kept. On June 14, 1973, Congress had passed the Case-Church Amendment. This law barred any future use of US forces in Vietnam, Laos, and Cambodia without the authorization of Congress. In 1974, Gerald Ford became president after Nixon’s resignation. Also in 1974, Congress sharply cut funding for South Vietnam. When the north invaded, the US offered no assistance and South Vietnam fell to communist forces, amply supplied by China and the Soviet Union, in 55 days. Following the end of the war, hundreds of thousands of Vietnamese became refugees, were sent to re-education camps, or were executed by the victorious communists.

General David Petraeus has successfully used the Abrams strategy in Iraq. Violence in Iraq is at its lowest point since 2004. Presidential candidate Barack Obama says the surge strategy has “succeeded beyond our wildest dreams” even while he continues to call for the withdrawal of all US troops. Obama is determined to end the war in Iraq the same way his Congressional forebears ended the war in Vietnam.

A second parallel to the 1970s is the current sad state of the US economy. In 1973-1975, the US suffered its worst recession since the 1930s. Several factors that are being replicated in 2008 played a role in the recession of 1973.

One of the causes of this recession was Nixon’s attempt at price controls. In 1971, in order to fight inflation and unemployment, Nixon enacted a 90-day freeze on wages and prices. After 90 days, a Cost of Living Council took charge of the controls, which were gradually relaxed. However, they were reestablished in 1973.

The result of Nixon’s price controls was predictable. Farmers stopped selling their produce and shortages resulted as consumers bought the last items off of supermarket shelves. George Schultz, head of the Office of Management and Budget, told Nixon, “At least we have now convinced everyone else of the rightness of our position that wage-price controls are not the answer.” The controls were removed in 1974, except for those on the oil and gas industries, which lasted several years longer.

Nixon was also responsible for a large increase in government regulation. Numerous government agencies, such as the Environmental Protection Agency, the Occupational Safety and Health Administration, and the Equal Employment Opportunity Commission, date from the Nixon Administration. By some estimates, more regulation was passed by the Nixon Administration than any other presidency since FDR.

The other major cause of the 1973 recession was the Arab Oil Embargo. In response to western support for Israel during the Yom Kippur War, the Arab members of OPEC launched an embargo against the United States and the Netherlands and raised the prices by 70% for other western European nations.

Oil prices immediately spiked. The price of a barrel of oil eventually went higher than $5 and gasoline prices increased to more than $1 per gallon. Gas stations ran out of gasoline and people had to wait for hours at stations that still had supplies.

President Nixon called for voluntary conservation of oil. Congress passed a 55-mile-per-hour speed limit to decrease fuel consumption. When OPEC resumed supplying oil to the US, it was at greatly increased prices. The high price of oil led to more inflation, more unemployment and a recession. The recession, in turn, led to a decrease in oil consumption.

The embargo also spurred construction of the Trans-Alyeska Pipeline (TAP). Environmental groups had sued to stop construction of the TAP in 1970. On November 16, 1973, President Nixon approved construction of the pipeline as a response to the oil crisis. The TAP was completed in 1977 and Alaskan oil played a role in keeping prices low in the 1980s and 1990s.

In 2008, proposals have been discussed for new price controls on oil, gasoline and healthcare. Wage controls have also resurfaced as limits on pay for corporate executives. There is no reason to believe that economic realities of enacting new government controls in the marketplace would have a result that is different from the problems they caused in 1973.

Oil prices have fallen recently, largely due to the deepening worldwide recession, but previously reached record highs in 2008. The problem is similar. In 1973, the shortage was artificially induced by OPEC. The current oil shortage is one of increased demand and limited supply.

Today, as in the 1970s, environmental groups resist drilling for oil domestically even though the US has large reserves in the Alaska National Wildlife Refuge (ANWR) and off the US coasts. Utilizing these oil reserves would bring more oil to the market just as the construction of the TAP increased oil supplies in the 1970s.

A third similarity is the unpopularity of the President of the United States in the 1970s and today. Richard M. Nixon had to deal with an unpopular war in Vietnam as well as a weak US economy. The death knell of his administration was sounded by the Watergate scandal in 1973 and he resigned in 1974.

Gerald Ford, who had replaced Vice President Spiro Agnew after his resignation in 1973, became president upon Nixon’s resignation. While he lowered inflation and unemployment through deregulation and tax cuts, the brief Ford Administration is remembered mainly for his pardon of Richard Nixon, the fall of Saigon, and his seeming clumsiness.

In 1976, the country was ready to put the Nixon years behind it. Jimmy Carter was virtually unknown outside of his home state of Georgia. In the 1976 campaign, he won media support with his message of hope and change, which enabled him to win the Democratic nomination and then the presidency.

In reality, the Carter presidency was a time of high inflation, high unemployment, and a renewed energy crisis. In 1978, the Iranian Revolution caused oil prices to double within a year, this time to $39 per barrel. Carter’s energy policy focused on increased conservation and gasoline rationing was seriously considered. There was no actual shortage of oil in 1979, and this Second Oil Shock was resolved by increased oil production in Alaska and the Gulf Coast. By 1986, after the oil industry deregulation took effect, oil prices returned to $10 per barrel.

Rising oil prices during Carter’s administration led to a return of high inflation. A slowing economy caused an increase in unemployment. By the end of Carter’s term, the misery index, inflation plus unemployment, approached 21%.

Carter’s sole foreign policy victory was the Camp David Accords, a peace treaty between Israel and Egypt that has held to this day. While Carter correctly deemed human rights to be important, his emphasis on human rights in Iran under the Shah helped pave the way for the revolution that brought the Ayatollah Khomeini to power and ushered in a much more abusive regime. Carter’s lax attitude towards Soviet expansion led to the invasion of Afghanistan in 1979.

Ironically, a final response of President Carter to the oil crisis was the introduction of the Carter Doctrine. The Carter Doctrine held that “an attempt by an outside force to gain control in the Persian Gulf” would be regarded as “an assault on the vital interests of the US” and would be “repelled by any means necessary, including military force.” This policy set the precedent for the Persian Gulf War as well as the Iraq War.

In the election of 2008, Barack Obama proposes to repeat many of the same mistakes of the 1970s. His attempts to prematurely remove US troops to force an end to the Iraq War would put the gains of General Petraeus’ surge at grave risk. His reticence toward domestic oil drilling would lead to further supply problems and, ultimately, a return to higher prices as the economy recovers. Obama’s calls for heavier regulation and wage controls for CEOs in the wake of the Wall Street crisis would strangle the free market just as they did for Richard Nixon. Obama’s plan to increase taxes would also prolong our current crisis.

American voters should consider the mistakes of the 1970s when voting for a presidential candidate in 2008. A return to those failed policies would further damage the US economy as well as leading to increased instability abroad. A diplomatic failure with Iran in the next presidential term could lead to a nuclear-armed terrorist state whose reach could extend past Israel all the way to the United States. The next president should enact positive market-based reforms and negotiate from a position of strength to avoid the mistakes of the past.


Sunday, October 5, 2008

Why the Wall Street Bailout Is a Waste of Money

On October 3, 2008, President Bush signed into a law the Economic Stabilization Act. This $700 billion law was touted as the only way to rescue the US economy from certain collapse. Instead, President Bush and Congress have likely only delayed the inevitable. The law does nothing to resolve the underlying problems that are threatening our economy.

Candidates from both parties have been quick to condemn Wall Street greed for the implosion of a growing number of banks and investment firms. These companies made billions of dollars in the subprime lending market for years before the bubble of inflated real estate prices began to burst. If we look deeper into the history of subprime lending, an industry in which I worked at one time, we find that while greed certainly played a role, it is not the only factor in the crisis.

Subprime lending as we know it today did not exist prior to 1977. In that year, Congress passed the Community Reinvestment Act, which was signed into law by Jimmy Carter. The law was intended to prevent racial discrimination in lending and to prevent the “redlining” of low-income neighborhoods. Activist groups used the law to challenge regulatory approval for new bank ventures when banks did not comply satisfactorily with the CRA.

The act was significantly strengthened by President Bill Clinton in the 1995. His administration stepped up enforcement of the act by setting performance-based goals. The Clinton Administration also encouraged banks to relax rules for income verification of borrowers and provide for lower down payments. The new CRA also allowed banks to bundle mortgages into securities, which could then be sold to other banks instead of being held by the original lender.

The Clinton Administration also pressured Fannie Mae and Freddie Mac, quasi-governmental companies, to buy more of these mortgage backed securities. In 1999, Fannie Mae CEO Franklin Raines, now an Obama advisor, told the NY Times “there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.'' Fannie Mae further reduced the credit requirements of the mortgages that it purchased as it increased its share of the mortgage market.

The US government directly encouraged the banks to make risky loans with the implicit guarantee that they would be bought by Fannie Mae and backed by the government. Community groups pressured banks to lend more money to low-income borrowers under the threat of bad publicity. Banks did not resist when they found that money was too easy to make in the subprime market in a time of rapidly rising real estate values. By 2007, Fannie and Freddie owned or guaranteed about 40% of the US home loan market. Many banks were heavily invested in Fannie and Freddie stock as well as mortgage backed securities.

The fundamental flaw of the Economic Stabilization Act is that while it includes money for the US Treasury to buy bad mortgages from troubled banks. What it does not do is to remove the impetus that sparked the subprime frenzy in the first place. The Community Reinvestment Act is still law and many of the same people, in both government and banks, are still wielding power.

The Democratic Party is heavily involved in the crisis due to their goal of providing more affordable housing for low-income families. Chris Dodd, chairman of a senate committee that oversees banks, resisted attempts to reform Fannie and Freddie in 2003 and 2005. Dodd also received the most money of any congressman from Fannie and Freddie employees and PACs. Barack Obama, the second highest recipient, includes former Fannie and Freddie CEOs, Jim Johnson and Franklin Raines, among the economic policy advisors to his presidential campaign. Obama also worked with ACORN, one of the community activist groups that pressured banks to lend more money in low-income areas or be harassed under the CRA.

On the other hand, the Republicans did halfheartedly attempt to reform the system. President Bush noted as far back as 2001 that the size of Fannie and Freddie was “a potential problem.” In both 2003 and 2005, Republicans introduced the Federal Housing Enterprise Regulatory Reform Act. In both cases, Democrats threatened a filibuster over the ability of the GSEs to contribute to groups like ACORN. In spite of a Republican majority in both houses, the bill went nowhere.

With the Democrats virtually certain to regain control of both houses of Congress and likely to capture the White House as well, it is highly unlikely that there will be any meaningful reform to the CRA. If the government continues to pressure banks to make loans to people who cannot repay them, then we will certainly revisit the mortgage crisis. More bailouts will be required until the Treasury has no money left. Higher taxes to generate revenues would likely cause the economy to slow further.

As in Ayn Rand’s Atlas Shrugged, the government and the community activists essentially became parasites that attached themselves to the financial sector, which willingly went along with the scheme. Money was sucked from the banks until the bubble burst and they started to fail, resulting in the present crisis.

To further complicate the situation, two other bailouts are already appearing on the horizon. Medicare is projected to be bankrupt by 2019. Social Security will follow it into insolvency in 2041. Either large tax increases or large benefit cuts will be required to keep the programs solvent. These bailouts will be on top of additional spending proposed by congress for programs such as universal health care.

If we are to avoid an economic collapse, there must be fundamental change in the attitudes of Americans. We should, to paraphrase a great president, ask not for handouts from our government, but ask that our government put a stop to spending on programs not authorized by the Constitution. We must return to the days before the New Deal and the Great Society when Americans did not look to the government to provide for their financial security.