The Commercial-News, Danville, IL

Letters to the Editor

October 5, 2012

Trickle-down not at fault

COVINGTON, Ind. — Contrary to remarks by President Obama, it was not, “… trickle-down economics that got us into this mess in the first place.” Research, which anyone can confirm, shows what really happened.

Beginning in September 2000, in response to the impending (2001) recession, the Federal Reserve reduced interest rates from 6.5 percent to an unprecedented low of 2 percent. Rates remained at or below 2 percent for three years until September 2004.

During this period, and with the backing of the FHA, government-sponsored enterprise banks “Fannie” and “Freddie,” and bank committee chairmen, Democrats Dodd and Frank, starts of new homes increased from 1.5 to 2.1 million annually, continuing a policy, initiated by President Clinton, to increase American home ownership, “… beyond anything we have ever seen.”

Most of the loans supporting these homes had historically-low “floating” (variable) interest rates, and/or were sub-prime (bad credit) loans, all requiring little or no down-payment, an outfall of the Clinton home policy, the unusually low Fed interest rates and rising home prices.

Bush officials attempted to end these practices in 2003 but were successfully fought by Congressman Frank, who said, “Housing can never be a bubble …”

Between September 2004 and January 2006, in response to an overheating stock market, Fed interest rates were jumped from 2 percent to 5 percent, greatly increasing the payment required for the “floating” mortgages. Housing starts peaked, mortgage defaults began to occur, home values eventually fell 25 percent and by September 2008, the month of bank bailout discussions, housing starts had plummeted to 0.7 million annually.

With the bursting of the housing bubble, thousands of jobs associated with housing, roads, malls, furnishings, etc., were lost and the unemployment spread to other sectors. Between 2007 and 2010, median net worth of American families fell from $127,000 to an incredibly low $77,000.

During the “boom” period, Fannie and Freddie had bundled many of the home loans and sold them to commercial banks. When the housing bubble burst, wiping out billions of bank assets, some banks needed a temporary influx of government cash to avoid bankruptcy, ie, bailouts, most of which was quickly repaid.

Does any of this sound like “trickle down,” “reckless banking” or “George Bush” policy to you? No, these are truthful, logical, cause and effect events, controlled by government agencies that show if we allow a few individuals to control the economy, even the smartest may make mistakes that become disastrous to the nation.

Neither Democrats nor Republicans nor the media, want us to understand such happenings because if politicians could not control economic events what, in fact, would they do and what would the media talk about. Power over us would be gone.

Until we, as voters, make the choice to separate economy and state, just as we separate church and state, we can expect(and deserve) constant economic turmoil and unnecessary recessions.

Ron Gore

Covington Ind.

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