Open Letter – U. S. Senate

….The definition of insanity is doing the same thing over and over again and expecting different results'.

You have been working at this now for 232 years, and have yet to grasp the concept of learning from your mistakes.

Borrowing as a means to restore an economy that has been devastated by precisely the very same behavior is truly the definition of insanity.

The US Economy is like a battleship; and there are two absolutes about battleships. First, they cannot be turned around in a bathtub; second, the effect of a one degree change in course will not be noticed for thousands of miles.

If it hasn’t already occurred to you, the mess we are facing today is a direct result of the government’s last attempt to change the course of the economy.

I am referring, of course, to the 1992-2000 changes to the Community Reinvestment Act.

During the March 1995 congressional hearings, William A. Niskanen, economist and then chair of the Cato Institute, cautioned Congress regarding the proposals for political favoritism in allocating credit and micromanagement by regulators. He warned that there was no assurance that banks would not be expected to operate at a loss. He predicted they would be very costly to the economy and banking system, and that the primary long term effect would be to contract the banking system and urged Congress repeal the Act.

From Mr. Niskanen’s March 8, 1995 testimony:

The Community Reinvestment Act should be repealed—not reformed or restricted but repealed! For no conceivable set of regulations on a bank is consistent with the objective of the Act to meet ‘the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with safe and sound operation of such institution.’

Contrasted with the March 30, 2007 comments of Fed Chairman Bernanke during a speech at the Community Affairs Research Conference,

'After years of experimentation, the managers of financial institutions found that these loan portfolios, if properly underwritten and managed, could be profitable" and that the loans "usually did not involve disproportionately higher levels of default'

'When it passed the legislation, the Congress could not have foreseen the extensive changes in financial markets and the economy that have occurred over the past thirty years; thus, the decision to write the statute broadly and with considerable flexibility appears wise in retrospect. In implementing the law, the banking agencies have tried to learn from market developments, from research, and from the comments of financial institutions, consumers, and other interested parties. The regulations have thus changed over time in response to the changing financial landscape and as we have learned more about what works and what doesn't.'

Yet, a mere 10 months later, Mr. Bernanke is warning Congress of the impending implosion:

' Our expectation is that delinquencies will go higher and that there will be ongoing losses in the subprime area," he said. Asked to put a dollar figure on total losses, he said, "I see so far about $100 billion, but it certainly could be several multiples of that as we go forward and the delinquency rates and foreclosure rates rise.'

Messrs. Bernanke and Paulson did not pay much attention to '..what works and what doesn’t' – and apparently, neither did Congress:

Bob McTeer, president of the Dallas Federal Reserve Bank from 1991 to 2004, said 'There was a lot of pressure from Congress and generally everywhere to make homeownership affordable for poor and low-income people. Some mortgages were made that would not have ordinarily been made.' He also said 'When a bank made a decision to purchase mortgaged-backed securities, they would somehow determine if some of them were in zip codes covered by the CRA, and therefore they could get CRA credit.'

Precisely what Mr. Niskanen’s warned would happen has happened.

Now, faced with the largest contraction of the economy since The Great Depression, the Obama Administration is proposing more of the same irrational and irresponsible behavior that landed us here in the first place.

And it comes as no surprise to anyone with half a brain that the current “stimulus” package looks more like a political payoff than anything remotely representing a prudent, fiscally responsible plan for America’s future.

President Obama had promised the stimulus would go toward 'major infrastructure projects' and yet less than 5% of his $900 billion proposal – $45 billion – goes toward this purpose. The American Society of Civil Engineers has concluded that it would take $2.2 trillion to bring the nation’s infrastructure into good repair. Yet, what we have:

• $4 billion for 'neighborhood stabilization activities'

• $600 million for new cars for government bureaucrats

• $50 million for the National Endowment for the Arts

• $75 million to fund anti-smoking programs

• $650 million for the switch from analog to digital TV

• $335 million to help prevent the spread of sexually transmitted diseases

• $600 million for climate change research

And that’s just a small sample of the stupidity of this proposed “stimulus” package.

Let me remind you of one classic ambitious attempt at social reengineering. In 1990, with the nation enduring a comparatively mild recession, President George H. W. Bush abandoned his infamous “no new taxes” pledge and signed a 10 percent sales tax increase on luxury items costing more than $110,000.

While satisfying the ideological prerogative of Congress to “tax the rich and spread the pain around” the idea backfired miserably. Sales plummeted, and ended up costing the taxpayers more in unemployment benefits than the taxes it raised.

It also cost President Bush his job.

So we are now again faced with the dilemma of creating prosperity out of thin air – it doesn’t work. It never has and never will. The New Deal proved it, the Community Reinvestment Act proved it.

And the tens of thousands of other wasteful government intrusions on the natural order of the Free Market System over the years should, by now, give any one of you the courage to say 'the emperor has no clothes'.

The sheer arrogance of a government to ask its people for further sacrifice when it cannot control its own piggish consumption of this nation’s true productivity is an insult to the people whose blood, sweat and tears are responsible for making American great.

I, and millions like me, are appalled at the cowardice of the government to fail to take the responsibility for its own actions, choosing instead to foist it upon not only those who can least afford it now, but future generations of Americans.

The only stimulus this economy needs is to put more money back into the pockets of the American people.

And by the way, lest you forget, it is OUR money. Give it back to us. Trust us to do with it what we do best; to invent, to create, to produce, to discover, to build and construct – that is the only medicine needed to ensure a healthier economy.

I urge you to send a clear message to President Obama that the American people will not be fooled again.

Yours truly,

Steven Rosamilia

cc: The White House

The author invites all to copy and Sign and Fax this letter to the Senate and WhiteHouse.

You must be logged in to post a comment Login

Leave a Reply