Financial markets have caused a whirlwind of global panic as the five major U.S. investment banks have fallen. Fears loom that their demise might grow into a global depression, as Congress spent last weekend shaping a proposed government bailout.

It is all too tempting for many to blame President Bush or capitalism for the current financial crisis, but hatred toward Bush shouldn’t cloud the reality of how America has arrived at this apparent dilemma.

The real focus should be that financial institutions are losing money on trillions of dollars in mortgage-backed securities because of lowering housing prices and defaults. The defaults have been occurring because a painful amount of these mortgage-backed securities have the lower credit ratings of subprime and Alt-A. These loan conditions are very light and do not require a lot of capital or cash coming from, say, a paycheck.

To address the sluggish economy because of the tech bubble and Sept. 11, the Federal Reserve lowered interest rates, causing credit excesses and a bubble in housing prices, which are now falling to dramatic lows with little demand for housing.

Rep. Barney Frank, chairman of the House Financial Services Committee, had never forced government-backed financial companies Fannie Mae and Freddie Mac to limit the amount of their risky securities, a position many congressional democrats still won’t rescind, The Wall Street Journal said in an editorial Sept. 9. This puts these legislators’ interests ahead of America’s due to their ties and support for Fannie and Freddie, whose bailout may reach $200 billion of taxpayer money.

Democrats didn’t care if more purchases of subprime and Alt-A loans added more uncertainty to the economy, they wanted lesser-income home ownership, regardless of any ability to pay.

According to a column by Charles Calomiris and Peter Wallison in the Wall Street Journal, the amount of all subprime and Alt-A mortgages in the country went from less than 8 percent in 2003 to more than 20 percent in 2006. Fannie and Freddie own more than a trillion dollars of these mortgages and were the largest purchasers of them from 2004 to 2007. Calomiris is a finance and economics professor at Columbia and Wallison is a former general counsel to the Treasury Department. Both contribute to the American Enterprise Institute.

Democrats use affordable housing funds as a convenient excuse for keeping the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp., but these firms also provide contributions from their profits to democrats’ agendas. Sens. Chris Dodd, John Kerry, Barack Obama and Hillary Clinton “were the top four recipients of Fannie and Freddie campaign contributions,” according to a column by Al Hubbard and Noam Neusner in The Washington Post Sept. 12. They also wrote that President George Bush rightfully confronted Fannie and Freddie by blocking appointees to the mortgage companies’ boards.

The Washington Post reported May 24 that Jim Johnson, the head of Obama’s vice-presidential search committee, was chief executive of Fannie Mae for almost 10 years and received $21 million in his last year.

Fannie and Freddie have also contributed profits to the Association of Community Organizations for Reform Now, which describes itself as a nonpartisan social justice organization, that has alleged voter fraud in numerous states, CBS reported Oct. 2, 2006.

The Ethics and Public Policy Center’s Stanley Kurtz wrote that the organization collaborated with Weatherman Underground terrorist Bill Ayers’ Chicago Annenberg Challenge school program.

Democrats continued to support the irresponsible housing funds of Fannie and Freddie by requiring Paulson’s bailout to send 20 percent of their profits to those funds, which republicans rightfully demanded be taken out last weekend, the Wall Street Journal wrote in a Sept. 27 editorial. But democrats would rather see America bankrupt by sending more money to the funds that helped start this financial crisis to begin with.

Calomiris and Wallison also noted democrats blocked republicans’ reform bill announced in 2005 that would’ve banned government-sponsored enterprise portfolios such as Fannie Mae and Freddie Mac’s and required more capital backing. McCain supported the reform bill. Obama was merely “present” at best.

Whether Paulson’s treasury bailout plan will prevent a global economic depression or do nothing but encourage protection for irresponsible lending behavior like that of Fannie and Freddie, loose credit must never again be used to fuel the speculative bubble that is behind today’s economic woes.

Stephen Ontko is a senior economics major and a columnist for the Daily Kent Stater. Contact him at [email protected].