The Government Housing Bubble

On Tuesday, Secretary Treasury Geithner finally embraced some reality about the derivation of America’s mess. Here are some of his comments to Barney Frank’s committee: "The performance of the GSEs was symptomatic of this larger regulatory and oversight failure. They were allowed to earn private gains for many years, but ultimately the taxpayer subsidized their losses. They were allowed to expand and manage their investment portfolios without regard to the risk they posed to the system. Over time, the GSEs (Fannie Mae and Freddie Mac) were permitted to guarantee riskier mortgages and mortgage-backed securities. They were not required to hold adequate capital and employed inadequate risk management."

The entire remarks are available for review at http://www.ustreas.gov/press/releases/tg603.htm

This document may grow to become a testament about the inherent flaws and weakness of unregulated government activity in any major sector of the economy. TheFundamentals has been spectacularly critical of Geithner. We see no reason to change our position based on this one accurate, no punches pulled assessment of the breakdown of all aspects of the United States government in the creation and subsequent care and feeding of the US housing bubble. Geithner’s remarks are the most explicit indictment of government in all respects – elected politicians, bureaucrats, lawyers and their special interest co conspirators. Barney Frank spent most of his time during Geithner’s presentation and Q and A period defending himself and the party in power and pointing the finger at the party out of power. Frank simply does not get it. He continues to see issues through the eyes of a person who knows deep down that he is responsible but he cannot accept responsibility so he dances, deflects and defends. It is absolutely pathetic to see such a weak individual in the powerful position he holds due solely to a lack of term limits. Frank and his associates are determined to condemn this country to more of his brand of “lowest common denominator” governing and regulating. Geithner accurately described it as, “a race to the bottom…”

OK. So what?

Each major bureaucrat in the national government could do what Geithner did on Tuesday. Each could self examine their function and self indict and, at a minimum, start to change the conversation in the United States from the Disney-like fiction about the benefits and successes of government activities and, instead, start the recognition process of seeing the weaknesses and flaws in government dominated activities. It is no different than the process an addict goes through if he/she intends to rehabilitate. They must embrace the reality of their situation.

To wit, Education Secretary Arne Duncan is the new boy dancing to the tune of low expectation, low common denominator self interest unions that have devastated the prospects of principally urban youth by forcing them to attend damaged school systems. Instead of clamoring for more money, which was the downfall of FNMA and FHLMC, Duncan should call for a long time out and a direct assessment of the horrible record of the NEA and AFT in our large cities school systems. His call should be to privatize education, introduce competition and eliminate the self interest dominated control of the teachers union. Where and when will we get a Geithner like analysis of this situation? It is time for an intervention Mr. Duncan.

To wit, Health and Human Services Secretary Kathleen Sebelius is in charge of Medicare and Medicaid. These programs and systems are broken, busted and bewildered. Health care costs in the United States are double per capita (see: TheFundamentals, September 24, 2009) than other major developed countries with no resulting longevity benefit.  Instead of a Geithner like analysis we get government double talk. Where is the honest analysis? It is possible that this person just doesn’t grasp the severity of the problem? We doubt it. More than likely it is timed deception designed to provide cover until she can move on to another job with better pay and benefits.

To wit, the Postmaster General, Mr. Jack Potter. His entity is no longer able to compete. His concessions to the postal union are matched by similar cushy contracts by SEIU and NTEU and the aforementioned education unions – AFT and NEA and numerous other public employee unions in providing spectacular wages and benefits for their employees as the revenues decline and the business models beg for revision. Where is the honest analysis?

Here is how Geithner described the housing bubble and the performance of Fannie Mae and Freddie Mac. “A colossal, devastating failure.”

Amen Mr. Geithner. Duncan, Sebelius and Potter could mouth the same words and begin a real period of introspection and change. You (Geithner) have to because you are living the reality of the mess. You can’t dodge it. Let’s hope your example, albeit rendered posthumously, is contagious.

We want to repeat several statements from above because of their significance. Unregulated government activity in any major section of the economy is inherently flawed. “A race to the bottom.” “A colossal, devastating failure.”  Give Geithner credit.  Read his assessment.  Demand this accountability from all the millions of government employees.