Friday, October 28, 2011

Fannie, Freddie, and Failed Economies

While there has been a recent uprising of frustration against Wall Street, big companies, and the wealthy in our society, many people are ignoring or forgetting the fact that the U.S. government has done nothing to fix one of the main underlying causes of our economic downturn: Fannie Mae and Freddie Mac.

The huge government-run corporations began in 1938 during the Great Depression as part of the New Deal under Roosevelt. Their purpose was to back up banks in their mortgage loans by taking on 80% of the risk. In other words, the sibling corporations would take 80% of the loss on any unpaid loans that the banks wanted to make.

Prior to the 1990's, banks had a standard that must be met for people to receive a loan; namely, a job and an appropriate amount of income for the amount that they were borrowing. However, the government decided that anyone should be able to get a loan, including those without jobs or an income. Through Fannie and Freddie, the government forced banks to make unwise loans and backed these loans that were sure to fail with taxpayer money.

With this sort of history, it is not surprising when we saw the housing bubble of the '90s and early 2000's burst. The loans were obviously left unpaid. And who was left with the bill? The taxpayers! In 2008, the banks began declaring bankruptcy because of the number of toxic loans they were forced to sustain. The rest can be clearly seen today's poor economy.

These government agencies had a great purpose: help everyone achieve the American Dream. But their method of achieving this goal failed miserably. Instead of helping decrease the gap between the poor and the rich in America, they made it wider. Instead of seeing an increase in the number of families in homes, the increase has been in families without homes due to the large amounts of foreclosure. If Fannie Mae and Freddie Mac have done us and the American economy such damage, why are they still around?

Friday, October 14, 2011

Much Ado About...the Wrong Thing?

The recent Occupy Wall Street movement has made headlines and polarized mainstream media. Some view it as disorganized and purposeless, while others champion it as a powerful, democratic movement against greedy capitalists. The most common questions the media are asking follow the lines of "what will the outcome be?" or "should they be protesting?". However, Rich Lowry, editor of the National Review, has a unique take on the OWS movement.

In his article, Heed the 99 Percent, Lowry asks the question, "Is OWS protesting the right thing?" He agrees that the people a part of  Occupy Wall Street are rightly upset, but he thinks their anger and frustration are directed towards the wrong people.

The first place this article looks is to the population makeup of the movement. A vast majority of the protesters are college students and recent graduates. This generation began or graduated college during the Great Recession. After college they were left with sky-high debt and no job. The article gives the example of the "guy with the master’s from Harvard who owes $60,000 and lives off temp jobs."

Reading into the comments on the "We are the 99 Percent" webpage, Lowry points out that the other vein of frustration is healthcare. With jobs paying less and less, healthcare and other basic needs are higher than ever. The misery wrought by the recession is clear.

Lowry's punchline, however, is a stroke of genius. "Goldman Sachs could be dissolved tomorrow and the wealth of the 1 percent confiscated, and it wouldn’t make college or health care cheaper, or create one new job." Plain and simple, the Occupy Wall Street movement won't accomplish anything productive to benefit those hurt by the recession (or themselves) with their anger directed towards the financial kingpins on Wall Street. They can complain and protests as much as they like about the greedy, inconsiderate financial industry, but they won't see an improvement until there are, as the article states, "bold economic reforms and a rethinking of health care and higher education."

The point here is clear: Wall Street can do little to help the sufferings of those damaged by the recession. The OWS movement has caught the wrong culprit. Their energy would be much better used if channeled towards the industries that are spiraling high out of control with inflation, rubbing salt in the wounds of those already hurt by the recession.