Income redistribution (redistribution of wealth) is a political policy promoted by liberals as part of their ideology, and understandably it is opposed by conservatives. The basic premise of the belief system underlying liberalism is that money (wealth) should be more equally distributed so that accumulated wealth benefits all members of society, regardless of who earned it, and that the rich should be obliged (forced) to assist the poor on the pretense that the income shifting mechanism benefits the whole of society.

Thus, earned money should be redistributed from the earner to those who have not earned it, creating a more financially egalitarian society. Politicians expect - no, demand public funds, your tax money to subsidize those who they have arbitrarily classified as somehow disadvantaged (in return for votes). The entitlement culture (egalitarianism) is saying you owe it to them.

Egalitarianism is a liberal moral doctrine imposed by force. It is an ideology that equality ought to prevail throughout society even if it is at the detrimental expense of many members of society, typically those in the top 50% of American wage earners (those with a joint income over $31,000 per year). The most common form of egalitarianism today espoused by liberals, of whom both political parties are rife, centers on the belief that government should engage in an unnatural communal approach to individual income.

"Who is supposed to be equal?"
"In what respect are they supposed to be equal?"
“At whose expense are they supposed to be equal?”

Apparently it isn’t enough that equality already exists in all endeavors of the American mind, hands and heart, only that those Americans who compete poorly believe they are wrongfully and/or “unfairly” materially disadvantaged and therefore should be subsidized by others in society.

• According to legal egalitarianism, everyone ought to be considered equal under the law.
• According to education egalitarianism, everyone ought to be provided an education.
• According to moral egalitarianism, each person is of equal moral worth.
• According to democratic egalitarianism, everyone ought to have an equal voice in public affairs.
• According to political egalitarianism, everyone ought to be equal in political power.
• According to opportunity egalitarianism everyone ought to be equal in economic opportunity.
• According to material egalitarianism, everyone ought to be equal with respect to material possessions.

With the exception of the last liberal epistle, American society is egalitarian. Few would dispute this as a fact except to be argumentative. The final premise regarding material and financial wealth is understandably the greatest source of consternation and debate. Those receiving have come to expect it. Those giving have come to resent it. The undeniable correlation is an inverse relationship between material egalitarianism and the American Economy, the latter peaking over 30 years ago. Material egalitarianism (redistribution) continues to grow unchecked, arguably beyond reason, and seemingly without limits.

Our founding documents provided all egalitarian equalities, short of income and education redistribution, which only began after income taxes became a national reality and Congress attempted to engineer social mores with the revenues. Until then education was viewed as the reward for seizing opportunity, regardless of an individual's material circumstances. All that need be provided was opportunity.

Often, liberal proponents of redistribution argue that the rich are somehow exploiting the poor, first by the rich educating themselves, then working, achieving and enriching themselves, and somehow gaining “unfair” benefits as if by deceit and avarice. Socialists, a synonym for liberals, contend redistributive practices are necessary in order to redress the imbalance. Today, even when opportunity is spurned by the recipients, as in education for example, all other forms of wealth are never-the-less liberally redistributed with life-time tenure.

If in fact all men were created equal, why are some still receiving welfare? Egalitarianism is nothing less than the liberal acknowledgment that nobody is created "equal," except arbuably in the eyes of the law in the United States of America. Egalitarianism is also a profound liberal acknowledgment that redistribution will be a wildly successful method in a representative society to obtain and hold on to power. Thoughtful reflection will convince anyone that redistribution benefits no one - except politicians. (See archived article: The End Times)

“Unfair” is the key word. Everything depends on the vantage point of the person using the word. In typical fashion, the person using the “unfair” word has either: (1) never had to compete for anything in their life and seeks equitable distribution of national assets without competition, or (2) is so poorly prepared to compete, often by presonal choice, that productive citizenship is not reasonably possible. Congress has seen fit to reward the latter’s stellar performance with lifetime tax-free annuities on behalf of the rest of us, members of what should be Team America.

From each according to his ability (education and work ethic and a host of other attributes), to each according to his need (lack of education, lack of work ethic, etc.). It is often lost on ideologues that education and work ethic are somewhat redundant and typically the result of personal choice.

You may not believe it today, but redistribution has only just begun. If the current Administration has not made you a believer, it is hard to imagine what could. Barack Obama maybe.

Red State Patriot

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It's the rest of the public that remains in the dark, which is why we're launching this special educational series.

"Economic justice" simply means punishing the successful and redistributing their wealth by government fiat. It's a euphemism for socialism. In the past, such rhetoric was just that — rhetoric. But Obama's positioning himself with alarming stealth to put that rhetoric into action on a scale not seen since the birth of the welfare state.

In his latest memoir he shares that he'd like to "recast" the welfare net that FDR and LBJ cast while rolling back what he derisively calls the "winner-take-all" market economy that Ronald Reagan reignited (with record gains in living standards for all).

Obama also talks about "restoring fairness to the economy," code for soaking the "rich" — a segment of society he fails to understand that includes mom-and-pop businesses filing individual tax returns.

It's clear from a close reading of his two books that he's a firm believer in class envy. He assumes the economy is a fixed pie, whereby the successful only get rich at the expense of the poor.

Following this discredited Marxist model, he believes government must step in and redistribute pieces of the pie. That requires massive transfers of wealth through government taxing and spending, a return to the entitlement days of old.

Of course, Obama is too smart to try to smuggle such hoary collectivist garbage through the front door. He's disguising the wealth transfers as "investments" — "to make America more competitive," he says, or "that give us a fighting chance," whatever that means.

Among his proposed "investments":

• "Universal," "guaranteed" health care.
• "Free" college tuition.
• "Universal national service" (a la Havana).
• "Universal 401(k)s" (in which the government would match contributions made by "low- and moderate-income families").
• "Free" job training (even for criminals).
• "Wage insurance" (to supplement dislocated union workers' old income levels).
• "Free" child care and "universal" preschool.
• More subsidized public housing.
• A fatter earned income tax credit for "working poor."
• And even a Global Poverty Act that amounts to a Marshall Plan for the Third World, first and foremost Africa.

His new New Deal also guarantees a "living wage," with a $10 minimum wage indexed to inflation; and "fair trade" and "fair labor practices," with breaks for "patriot employers" who cow-tow to unions, and sticks for "nonpatriot" companies that don't. That's just for starters — first-term stuff.

Obama doesn't stop with socialized health care. He wants to socialize your entire human resources department — from payrolls to pensions. His social-microengineering even extends to mandating all employers provide seven paid sick days per year to salary and hourly workers alike.

You can see why Obama was ranked, hands-down, the most liberal member of the Senate by the National Journal. Some, including colleague and presidential challenger John McCain, think he's the most liberal member in Congress.
But could he really be "more left," as McCain recently remarked, than self-described socialist Sen. Bernie Sanders (for whom Obama has openly campaigned, even making a special trip to Vermont to rally voters)? Obama's voting record, going back to his days in the Illinois statehouse, says yes. His career path — and those who guided it — leads to the same unsettling conclusion.

The seeds of his far-left ideology were planted in his formative years as a teenager in Hawaii — and they were far more radical than any biography or profile in the media has portrayed. A careful reading of Obama's first memoir, "Dreams From My Father," reveals that his childhood mentor up to age 18 — a man he cryptically refers to as "Frank" — was none other than the late communist Frank Marshall Davis, who fled Chicago after the FBI and Congress opened investigations into his "subversive," "un-American activities."

As Obama was preparing to head off to college, he sat at Davis' feet in his Waikiki bungalow for nightly bull sessions. Davis plied his impressionable guest with liberal doses of whiskey and advice, including: Never trust the white establishment. "They'll train you so good," he said, "you'll start believing what they tell you about equal opportunity and the American way and all that sh**."

After college, where he palled around with Marxist professors and took in socialist conferences "for inspiration," Obama followed in Davis' footsteps, becoming a "community organizer" in Chicago. His boss there was Gerald Kellman, whose identity Obama also tries to hide in his book. Turns out Kellman's a disciple of the late Saul "The Red" Alinsky, a hard-boiled Chicago socialist who wrote the "Rules for Radicals" and agitated for social revolution in America.

The Chicago-based Woods Fund provided Kellman with his original $25,000 to hire Obama. In turn, Obama would later serve on the Woods board with terrorist Bill Ayers of the Weather Underground. Ayers was one of Obama's early political supporters.

After three years agitating with marginal success for more welfare programs in South Side Chicago, Obama decided he would need to study law to "bring about real change" — on a large scale. While at Harvard Law School, he still found time to hone his organizing skills. For example, he spent eight days in Los Angeles taking a national training course taught by Alinsky's Industrial Areas Foundation. With his newly minted law degree, he returned to Chicago to reapply — as well as teach — Alinsky's "agitation" tactics.

(A video-streamed bio on Obama's Web site includes a photo of him teaching in a University of Chicago classroom. If you freeze the frame and look closely at the blackboard Obama is writing on, you can make out the words "Power Analysis" and "Relationships Built on Self Interest" — terms right out of Alinsky's rule book.)

Amid all this, Obama reunited with his late father's communist tribe in Kenya, the Luo, during trips to Africa. As a Nairobi bureaucrat, Barack Hussein Obama Sr., a Harvard-educated economist, grew to challenge the ruling pro-Western government for not being socialist enough. In an eight-page scholarly paper published in 1965, he argued for eliminating private farming and nationalizing businesses "owned by Asians and Europeans." His ideas for communist-style expropriation didn't stop there. He also proposed massive taxes on the rich to "redistribute our economic gains to the benefit of all."

"Theoretically, there is nothing that can stop the government from taxing 100% of income so long as the people get benefits from the government commensurate with their income which is taxed," Obama Sr. wrote. "I do not see why the government cannot tax those who have more and syphon some of these revenues into savings which can be utilized in investment for future development." Taxes and "investment" . . . the fruit truly does not fall far from the vine.

(Voters might also be interested to know that Obama, the supposed straight shooter, does not once mention his father's communist leanings in an entire book dedicated to his memory.)

In Kenya's recent civil unrest, Obama privately phoned the leader of the opposition Luo tribe, Raila Odinga, to voice his support. Odinga is so committed to communism he named his oldest son after Fidel Castro.

With his African identity sewn up, Obama returned to Chicago and fell under the spell of an Afrocentric pastor. It was a natural attraction. The Rev. Jeremiah Wright preaches a Marxist version of Christianity called "black liberation theology" and has supported the communists in Cuba, Nicaragua and elsewhere. Obama joined Wright's militant church, pledging allegiance to a system of "black values" that demonizes white "middle classness" and other mainstream pursuits. (Obama in his first book, published in 1995, calls such values "sensible." There's no mention of them in his new book.)

With the large church behind him, Obama decided to run for political office, where he could organize for "change" more effectively. "As an elected official," he said, "I could bring church and community leaders together easier than I could as a community organizer or lawyer." He could also exercise real, top-down power, the kind that grass-roots activists lack. Alinsky would be proud. Throughout his career, Obama has worked closely with a network of stone-cold socialists and full-blown communists striving for "economic justice." He's been traveling in an orbit of collectivism that runs from Nairobi to Honolulu, and on through Chicago to Washington.

Yet a recent AP poll found that only 6% of Americans would describe Obama as "liberal," let alone socialist. Public opinion polls usually reflect media opinion, and the media by and large have portrayed Obama as a moderate "outsider" (the No. 1 term survey respondents associate him with) who will bring a "breath of fresh air" to Washington.

The few who have drilled down on his radical roots have tended to downplay or pooh-pooh them. Even skeptics have failed to connect the dots for fear of being called the dreaded "r" word. But too much is at stake in this election to continue mincing words.

Both a historic banking crisis and 1970s-style stagflation loom over the economy. Democrats, who already control Congress, now threaten to filibuster-proof the Senate in what could be a watershed election for them — at both ends of Pennsylvania Avenue. A perfect storm of statism is forming, and our economic freedoms are at serious risk. Those who care less about looking politically correct than preserving the free-market individualism that's made this country great have to start calling things by their proper name to avert long-term disaster.

By INVESTOR'S BUSINESS DAILY
July 28, 2008

http://www.ibdeditorials.com/IBDArticles.aspx?id=302137342405551&kw=socialism

Comments are welcome at redstatepatriot@hughes.net. Please include the title of the article as your subject line. Selected responses, in whole or part, may be published (appended to the article).

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Economic collapse is preferable to this deal. And I think we ought to call their bluff.

Just because the secretary of this and the chairman of that tell us that a global financial meltdown is just days away, that doesn’t make it so. These same people have been wrong about everything else they’ve predicted since this difficulty began. I personally don’t feel any obligation to believe their sky-is-falling routine.

And even if they’re right, I’d rather take the economic hit and work our way out of it than commit the sins against our Republic that are all through this immoral scheme.

And this is exactly that – immoral.

It is immoral to make working Americans pay for the failings and greed of individuals and companies on Wall Street. It is immoral to make responsible people clean up the mess of irresponsible people. It is immoral to put this vast amount of money and power into the hands of one man or one committee. It is immoral to impose textbook socialism on American finance and business without the consent and cooperation of the people. It is immoral to give to government sweeping powers that cannot in any way be justified by a resort to the Constitution. It is immoral to heap such debt on the government or the taxpayer. It is immoral to expect the American taxpayer to shoulder the cost of “saving” the world economy. It is immoral for such a massive governmental move to be made without extensive and deliberate public input and debate.

Put another way, the Wall Street people crapped the bed – let them sleep in it. Working people didn’t cause the problem and working people shouldn’t be expected to clean up the problem. People who pay their mortgage shouldn’t have to pick up the tab for people who don’t pay their mortgage.

And we shouldn’t abandon principle for expediency. Americans shouldn’t have to abandon their beliefs, the free market or their form of government because some business types got greedy and some government types got stupid.

If the American economy is so mis-structured that the collapse of some alphabet-soup companies puts it over the edge, then maybe it needs to go over the edge. If we’re that weak, maybe we should knock it down and start over.

We’ve gone through recessions before. We’ve gone through collapses before. We’ve been through economic hell in this country several times, but each one of those times – except, possibly, under FDR – we stuck by our Constitution and we stuck by our heritage. There’s no reason we ought to do any different this time.

And there’s no reason we ought to believe that government debt – the root cause of so many of our economic problems – is the solution to this problem. Two wrongs don’t make a right, and this cure is worse than the disease. To saddle our economy with this debt will have a long and terrible impact on American workers, taxpayers and businesses.

Far better to take our medicine now and get it over with. Better to weather the storm than to delay it and ultimately intensify it.

So I’m not going along anymore. The negatives outweigh the positives. I don’t trust these people when they predict dire outcomes, and I don’t believe that those dire outcomes – should they happen – are worse than what the fat cats are trying to shove down our throats.

Don’t sell out your principles for a mess of pottage. Don’t throw out the Constitution and capitalism because we’re in a tight spot. Stand like Americans, don’t capitulate like slaves. Men have fought and died for political and economic freedom, and Washington wants us to hand some of that back because of something we don’t understand on the evening news.

This bailout is a bad thing. It is a first cousin to slavery. And I’ve turned against it. I’m going to call my congressperson and my two senators and I’m going to ask them to vote against it.

by Bob Lonsberry

http://www.lonsberry.com/writings.cfm?story=2471

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Over at Political Affairs Magazine, a publication of the Communist Party USA, writer John Case is gloating. His article about the crisis is headlined, “A Dose of Socialism to Forestall Disaster.” He thinks that Paulson and Federal Reserve Board chairman Ben Bernanke have been reading the works of closet Marxists.

But none of this is secret. At a time when many pieces of legislation before Congress take up thousands of pages and do their best to hide pork barrel spending, Paulson’s three-page plan for Wall Street socialism is straightforward and simple. If passed by Congress, Paulson would assume the dictatorial power and authority to designate financial institutions “as financial agents of the Government” and order them to perform “all such reasonable duties related to this Act as financial agents of the Government as may be required of them…”

The bill gives Paulson automatic access to $700 billion and raises the limit on the public debt to $11.3 trillion. He gets the power to issue regulations, hire people, establish various financial “vehicles,” and take other “necessary actions.”

Conservative Senator Jim Bunning is brutally honest, saying that “…the free market for all intents and purposes is dead in America.” He said Paulson’s plan “will take away the free market and institute socialism in America. The American taxpayer has been misled throughout this economic crisis. The government on all fronts has failed the American people miserably.”

“After reviewing the Administration’s proposed bailout plan, I believe it is completely unacceptable,” said conservative Senator Jim DeMint. “This plan does nothing to address the misguided government policies that created this mess and it could make matters much worse by socializing an entire sector of the U.S. economy. This plan fails to oversee or regulate the government failures that led to this crisis. Instead it greatly increases the role for Secretary Paulson whose market predictions have been consistently wrong in the last year…”

Every newspaper in America should print a copy of his plan. Every news anchor and commentator should read it out loud to the American people. The American people have a right to know that President Bush and Congress are officially creating a socialist America.

Over at the “conservative” Fox News Channel, however, some commentators think this is just great. “I love it,” Fred Barnes of the “conservative” Weekly Standard said of the temporary market rise in response to the anticipated Paulson plan. “Look,” Barnes said, “when I keep hearing this is going to cost a trillion dollars, and so on, it may not cost anything.” The U.S. may “come out ahead” in the long run, he confidently predicted. He praised Paulson and Bernanke for acting “boldly.”

Another “conservative,” Charles Krauthammer, was almost giddy. “It took FDR a decade to put in place all the institutions of the New Deal,” he commented. “Paulson and Bernanke did it in ten hours. I mean, in one night, they created a whole new world.”

However, on the September 21 edition of Fox News Sunday, host Chris Wallace pointed out that Paulson has already been caught making reassuring but false statements about the crisis. In March, also on Fox News Sunday, Wallace had asked him, “Are more Wall Street firms in danger, at risk, of going under? Paulson replied, “I’ve got great confidence in our financial market, our financial institutions. Our markets are resilient. They’re flexible. Our institutions, our banks and investment banks, are strong.”

And this is the guy being entrusted with virtual dictatorial power over Wall Street? Rather than praise him for his intellect and ability, why aren’t Barnes and Krauthammer demanding that Bush fire him?

The liberal media are, of course, also trying to keep the American people in the dark about what is happening. The Washington Post deceptively calls it a “rescue plan.”

The “debate” taking place in Washington and the media is being carefully controlled. The Republican Bush Administration supports the plan and Congressional Democrats want to take it further. The Democrats want even more federal involvement in the firms that are being acquired. In other words, it is a question of how much socialism they want. The Democrats want more socialism; the Bush Republicans want slightly less. But it is still socialism.

There is a bipartisan note: both sides agree that there should be a new government board assigned to monitor America’s transition into a socialist economy.

Both major party presidential candidates, John McCain and Barack Obama, have not objected to the proposed federal takeover, although McCain has raised questions about giving Paulson too much power.
Constitution Party presidential candidate Chuck Baldwin, who has been endorsed by Rep. Ron Paul, is ripping the Democrats and the Republicans. “That deer in the headlights look on the faces of Obama/Biden/McCain/Palin when discussing this crisis should tell Americans everything they need to know about these candidates,” he said. “Not one of them is letting on they know what’s really happening, much less how to fix it!”

He said, “So far, the only solution being talked about is more of the same failed monetary policies that got us into this mess in the first place―more fake money, more debt, more usury. It is time to demand a return to sound money.”

On the House side, 31 members of the House of Representatives have voiced public objections in writing to going further down the socialist road. They are members of the Republican Study Committee (RSC), the Caucus of House Conservatives. They have sent a letter to Paulson and Bernanke.

Rep. Mike Pence, the former chairman of the RSC, said, “The Administration’s request amounts to the largest corporate bailout in American history. Congress should act, but should act in a way that protects the integrity of our free market and protects the American taxpayer from more debt and higher taxes. To have the freedom to succeed, we must preserve the freedom to fail. Any solution to our present crisis must preserve our essential economic freedom.”

“Government bailouts and takeovers are nothing new,” points out financial advisor Ric Edelman.

He cites the following: “In 1971, Richard Nixon rescued Lockheed by providing $250 million in loan guarantees. When the Penn Central Railroad failed in 1971, Nixon created Amtrak. Jimmy Carter gave $1.5 billion in loan guarantees to Chrysler in 1979. Under Ronald Reagan, the FDIC in 1984 spent $4.5 billion to rescue Continental Illinois, which still holds the record as the largest U.S. bank failure. Then, during the S&L crisis of the 1980s, George H. W. Bush approved the bailout of 747 savings and loans at a cost to taxpayers of $124.6 billion. In 1998, under Bill Clinton, the Federal Reserve Bank of New York bailed out Long Term Capital Management at a cost of $3.6 billion. During the Mexican Peso Crisis, Clinton arranged for loans and guarantees to Mexico totaling almost $50 billion. Then, following the September 11, 2001, terrorist attacks, George W. Bush approved $15 billion in subsidies and loan guarantees to aid the faltering airline industry. This year, the Federal Reserve approved a $30 billion credit line to help JP Morgan Chase acquire Bear Stearns and engineered takeovers of Freddie Mac, Fannie Mae and AIG. The names, dates and amounts are different, but that’s about it.”

In fact, however, the massive scope and price tag make the Paulson plan far different.

Meanwhile, some “progressive” economists and writers are urging the Democrats in Congress to take the plan much further by implementing the first phase of a global tax.

James Parrott of the Fiscal Policy Institute says that Washington needs to establish a “new regulatory regime that covers all financial institutions (including hedge funds), controls risk and introduces a tax on financial transactions to help repay U.S. taxpayers for coming to the industry’s rescue.” A tax on financial transactions, which would affect stocks and mutual funds, could be part of a global “Tobin Tax,” named after the late Yale University economist James Tobin, to bring in billions and even trillions of dollars a year to national governments and international institutions such as the United Nations. Such a plan has usually been marketed as a way to diminish “global financial instability.”

Dean Baker of the Center for Economic and Policy Research says that “The government should impose a modest financial transactions tax, comparable to the one in the United Kingdom. This can both restrain excessive trading and raise more than $100 billion a year in revenue.”

One cannot exclude the possibility of such a proposal being slipped into the final legislation. It is being reported that Senator Christopher Dodd, Democratic chairman of the Banking Committee, has been circulating a 44-page version of the bill. But Dodd’s Banking Committee website only has a three-page summary. What is in the rest of the proposal?

The next few days are critical. The American people can stop this rush into socialism, if only the liberal and conservative media start telling the truth about the socialist “new world” into which we are about to enter.

AIM Column
By Cliff Kincaid
September 23, 2008

http://www.aim.org/aim-column/socialism-is-coming-to-america/

Comments are welcome at redstatepatriot@hughes.net. Please include the title of the article as your subject line. Selected responses, in whole or part, may be published (appended to the article).

---------------------
Response by Suzanne:

I've just finished reading this and I am ready to go puke!

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Response by Len Salonsky:

From my vantage point, the American people have been enabling the turn towards socialism for decades by their complacency and by their almost universal demand for entitlement increases whose implementation lie outside the principles and codification of the US Constitution. Unscrupulous politicians (perhaps the majority) are glad to accommodate any end-run around the Constitution if such an act will bring them a majority of votes.

The American people will never knowingly adopt Socialism, but under the name of Liberalism, they will adopt every fragment of the Socialist program until one day America will be a Socialist nation without knowing how it happened. ~ Norman Thomas - Socialist Party Presidential candidate (1976)

No republic has long outlived the discovery by a majority of its people that they could vote themselves largesse from the public treasury. ~ Alexander Tyler

In general, the art of government consists in taking as much money as possible from one party of citizens to give to the other. ~ Voltaire (1764)

You cannot bring about prosperity by discouraging thrift. You cannot strengthen the weak by weakening the strong. You cannot help the wage earner by pulling down the wage payer. You cannot further the brotherhood of many by encouraging class hatred. You cannot help the poor by destroying the rich. You cannot keep out of trouble by spending more than you earn. You cannot build character and courage by taking away mans initiative and independence. You cannot help men permanently by doing for them what they could and should do for themselves. ~ Abraham Lincoln

There are severe limits to the good that the government can do for the economy, but there are almost no limits to the harm it can do. ~ Milton Friedman, Nobel laureate

« Close It

LAMB: We started a number of weeks ago trying to get you to come talk to us, and you were on vacation. And you live six months of the year in Colorado. So, it was – I guess it was perfect for you to be here the week of the takeover.

WALLISON: Oh, yes. This has been quite a week.

LAMB: Where are you personally coming from? Where do you reside, and what have you done in your past?

WALLISON: Well, I’ve been in the government a fair amount. I’ve never run for office, but I’ve helped people who are running for office. And then, in Republican administrations, I’ve had some roles. I’m a lawyer – graduate of a law school, and then I practiced law for many years. But during that time …

LAMB: Harvard Law.

WALLISON: Harvard Law School. And during that time, I came in and out of government. I was a counsel to Nelson Rockefeller. I’m a New Yorker, actually, by birth. And so, I got to know Nelson Rockefeller. I became his counsel when he was vice president. And then in the Reagan administration, I was the general counsel of the Treasury Department. And finally, when Don Regan went over to become chief of staff in the Reagan White House, I went over about a year later – left my practice once more – and became a White House counsel for Ronald Reagan. So, I’ve had a fair amount of government experience and a lot of financial experience in the government. That’s one of the things that gave me a real interest in Fannie Mae and Freddie Mac.

LAMB: When did you start getting interested?

WALLISON: Well, when I was at the Treasury Department. They were – Fannie Mae was a fairly significant company in the early 1980s, when I was at Treasury. And even then, it occurred to me that this was an accident waiting to happen. They were in a – they had a business model that seemed to me to be unworkable, and one that would eventually cause a lot of problems. I wasn’t able to do anything at Treasury at the time. We were too busy with many of the problems, including the S&L collapse. But what I did remember when I left Treasury was that this is a subject that I’d like to return to at some time in the future. And fortunately, when I had an opportunity to go to AEI, I was able then to start looking more seriously at Fannie and start investigating a little bit more exactly how they were doing and whether my thoughts about what was going to happen to them were likely to come true.

LAMB: The statement by Ralph Nader had the word G – or the letters – GSE in it. I want to run a clip, just a very brief clip, of Henry Paulson, the secretary of the Treasury, last Sunday, at 11 o’clock in the morning, when he announced the takeover of Fannie Mae and Freddie Mac.

(BEGIN VIDEO CLIP)

HENRY PAULSON, U.S. TREASURY SECRETARY: These preferred stock purchases agreements were made necessary by the ambiguities in the GSE congressional charters, which have been perceived to indicate government support for agency debt and guaranteed MBS. Our nation has tolerated these ambiguities for too long. And as a result, GSE debt and MBS are held by central banks and investors throughout the United States and around the world, who believe them to be virtually risk-free. Because the U.S. government created these ambiguities, we have a responsibility to both avert and ultimately address the systemic risk now posed by the scale and breadth of the holdings of GSE debt and MBS.

(END VIDEO CLIP)

LAMB: OK. Break it down. What is MBS?

WALLISON: Mortgage-backed securities.

LAMB: What does that mean?

WALLISON: Well, what happens, one of the ways that Fannie and Freddie operate is to create pools of mortgages. And then they sell securities that are backed by those pools of mortgages. That’s how you get a mortgage-backed security.

LAMB: OK. Let me stop you for a second. I buy a house. I go to a bank, or the realtor gets me a mortgage. And I agree to pay, let’s just say $400,000 for a mortgage. What happens to that mortgage?

WALLISON: Well, if the mortgage gets to Fannie Mae or Freddie Mac, it’s put into a pool with a lot of other mortgages. That’s not the only thing they do. They have another way of doing this, but let me deal with the mortgage-backed security issue first. It’s put into a pool with a lot of other mortgages. Some of them are larger, some of them smaller, but thousands of them, all in the same pool. Then, securities are sold, backed by that pool. And the securities say we will pay you what we receive from the mortgages in the pool – your share of what we receive from the mortgages in the pool. And if we don’t – if the mortgages in the pool don’t perform as we anticipate they will perform, we will pay you anyway. In other words, we guarantee a certain return out of this pool. That’s what a Fannie or Freddie mortgage-backed security entails. Now, the reason you are able to get your $400,000 mortgage from some bank that is the lender, is that they know they can sell your mortgage to Fannie, which will buy the mortgage and put it into the pool, and then reimburse itself by selling mortgage-backed securities to investors.

LAMB: So, as an individual, could I turn right around and then buy securities with Fannie’s name on them?

WALLISON: Absolutely.

LAMB: Preferred or common? And what’s the difference?

WALLISON: No. It’s not that kind of security. It’s called a mortgage-backed security. And what it would say is, this security represents a one-millionth share of a certain pool of mortgages that we have created. And if we don’t pay you the specified amount to come out of this pool, then you have us backing the pool.

LAMB: So, if I had bought a security – and where would I buy that? Through a …

WALLISON: Through a broker.

LAMB: … broker?

WALLISON: Sure.

LAMB: And I owned it right now, and the government just took over Fannie Mae and Freddie Mac, do I still have the security backed?

WALLISON: Oh, sure. S ecurity is absolutely solid. And that’s one of the reasons why the government had to take over Fannie Mae and Freddie Mac, because so many individuals and mostly financial institutions around the world hold exactly those kinds of securities.

LAMB: How much of those securities do the Chinese own?

WALLISON: Oh, I don’t know the number, but it would be very large, probably running into maybe the hundreds of billions of dollars.

LAMB: Japanese, same thing?

WALLISON: Very large. Yes. Most central banks own these kinds of securities. And not only the mortgage-backed securities, but they buy direct borrowings by Fannie Mae and Freddie Mac, that they use – that is, the two GSEs, government-sponsored enterprises – use to buy and hold mortgages themselves. They don’t securitize all their mortgages. They hold a certain number of those mortgages, amounting now to about $1.5 trillion, in their own portfolios. That is, in fact, the most profitable way that they operate. The mortgage-backed securities is not a very profitable business. It’s a much less risky business. And as a result, it’s not as profitable. But when they really want to make profits, they buy and hold the mortgages themselves, because what is being paid on the mortgages is a lot more than they have to pay for the money they borrow in order to buy those mortgages.

LAMB: OK. What is a GSE, a government-sponsored enterprise?

WALLISON: Government-sponsored enterprise.

LAMB: And when was the first one started?

WALLISON: Fannie Mae was created in 1968 from an existing organization called Fannie Mae, which was started during the New Deal, and was an actual government agency. The trouble is that, by 1968, when we were in the middle of the Vietnam War, we were running deficits. And …

LAMB: In our general government.

WALLISON: In the general government. And the Johnson administration realized that the way Fannie Mae was growing, it was causing these deficits, because it was putting out a lot more cash than it was taking in any year, as it grew and bought more and more mortgages. So, they decided one of the ways to reduce this deficit was to get Fannie Mae off the government’s books, which they did by selling shares to the public in Fannie Mae, and turning it into a quasi-public company – with private shareholders, but at the same time, a kind of implicit government guarantee, because they were allowed to keep a number of ties to the U.S. government. So, since that time, the capital markets have believed that the government would back Fannie Mae, and ultimately, Freddie Mac, which was created a few years later, in case they got into any difficulty. And that’s why they’ve never had any trouble raising funds, because there was always the thought in the markets that the government would back them if they got into any trouble. They denied this for many years. They said, no, no, no. There’s no doubt that we are independent of the government. The government has no responsibility for us. Their supporters in Congress said exactly the same thing. But now we realize that the markets were right all along. And as soon as they got into trouble, the government stepped in and saved them.

LAMB: I want to jump in this process, because I found this on the Web, again from Ralph Nader. And it’s – he wrote a letter to Christopher Cox, who runs the Securities and Exchange Commission, about a lot of things, and including why do the people who run Fannie Mae – and there’s also Freddie Mac in this – but Fannie Mae make so much money? And the time period was the years 1998 to 2003. I’m just going to go down the list. Franklin Raines, at the time, the CEO, compensation from 1998 to 2003 was $90 million. Portion derived from components tied to attaining EPS goals – earnings per share goals, I assume – $52 million. Timothy Howard, compensation the same time period, $30 million. He was, I believe, the chief financial officer.

WALLISON: Yes, CFO.

LAMB: Jaime Gorelick, who we saw a lot of during the 9/11 Commission, she was the Vice Chairman of Fannie Mae, took away $26 million in those years, ’98 to 2003. And that her portion derived from components tied to attaining her earnings per share goals was $14 million. And then, Daniel Mudd, who was just let go as the CEO, during that time period – we’ll come back to him in a moment, because there was a lot more money since 2003 – took out $26 million. Now, how is it – I’m just asking you as a citizen. How is it that this government would have an organization that was solely government, and then created – Lyndon Johnson created a private company – quasi-private company …

WALLISON: Right.

LAMB: … with 18 board members …

WALLISON: Right.

LAMB: … and five board members from him …

WALLISON: Right.

LAMB: … and then subsequent presidents …

WALLISON: Right.

LAMB: … would let this kind of money be taken out of this organization? How did that happen?

WALLISON: Well, they are private companies, after all. If they have private shareholders, their obligation is to make sure that their shareholders earn profits. And to the extent that they were successful doing that, they would claim, like any other CEO, or any other major officer of a private company, that they’re entitled to the compensation that they were receiving. The problem with that argument is that they were helped substantially by the backing of the taxpayers of the United States. And so, one would think that anyone who realized he or she was getting that kind of backing would be less demanding in the compensation that they wanted. Unfortunately, they didn’t behave that way. They behaved as though they were entitled to all this compensation, when their jobs were made very easy by the fact that the government was seen by the markets as backing them up.

LAMB: Was the original decision on Lyndon Johnson’s part cynical?

WALLISON: You know in Washington, it’s very hard to say what is cynical. This is called smoke and mirrors, I think. It was – the idea was to get Fannie and Freddie – well, get Fannie, at that point, off the books of the government. If they had done it completely, if they had said, you won’t have a congressional charter, what you will have is a charter from, say, the State of Delaware, and you won’t have any line of credit to the Treasury Department, as they initially had, and we won’t say it’s possible for banks to invest in an unlimited manner in your securities, take away many of the benefits that Fannie and Freddie were given at the time they were privatized – then, it would have been a perfectly reasonable thing to do. That would have been a real privatization. Unfortunately, they only did a quasi-privatization, where they allowed the markets to believe that over time, if it was necessary, the government would step in and back them.

LAMB: Well, as you know an awful lot of political people in this town were put on the boards over the years. But I found this – and I’m going to go over a list in one of your books – but I found these couple of paragraphs in a ”New York Times” today. We’re recording this on Tuesday before the Sunday night airing.

”Mr. Bush has never been a fan of the government’s involvement in the mortgage markets. He has long viewed Fannie Mae and Freddie Mac as ’ticking time bombs,’ said his former chief economist adviser, Al Hubbard. As far back as 2002, he began arguing for greater regulatory control over the companies, but was thwarted by Republicans who controlled Congress. Democrats eventually granted the authority, which provided the legal underpinning for the takeover announced on Sunday.”

”Mr. Bush was so disapproving of Fannie Mae and Freddie Mac, Mr. Hubbard said, that beginning early in his administration, he refused to appoint members to their boards. ’That is very significant,’ Mr. Hubbard said. ’No president has ever done that.’ But he said, ’We’re not going to put people on the boards of these institutions that are these huge, systemic financial risks to the economy.’”

Now we call it OFHEO.

WALLISON: Yes.

LAMB: Which is a long way of saying …

WALLISON: Their regulator.

LAMB: … a regulator of this. I mean, it’s interesting that these are supposed to be private organizations, but regulated by outsiders.

WALLISON: Yes.

LAMB: So, we just asked that simple question. ”Can you tell us what’s the regulation? What’s the fact today about presidents you know naming people to the board?” And they said ”You have to write us a letter.” And we said, ”We’d like an answer quickly.” And they said, ”How quickly?” I said, ”We’d like it today or tomorrow.” And we never have gotten an answer from them.

WALLISON: Is that right?

LAMB: Yes. But I just bring that up, because when you wade into this, you look at this fact right here, that he has not appointed …

WALLISON: That’s right.

LAMB: … board members, can you explain that?

WALLISON: Sure.

LAMB: And is the president on the side of right as far as you’re concerned?

WALLISON: Yes. Absolutely. I was for this. I was for a number of things the president was proposing, and still am. But the point he was trying to make, I think – I think Al Hubbard’s got one part of it right. But I think what the White House was trying to do was to separate the government from Fannie Mae and Freddie Mac to the extent possible. The way this thing was set up by Lyndon Johnson and his administration, was to have a real quasi-government agency, in which the president appointed five members of the board, and the shareholders elected the remaining 13. And so, that reflected a certain involvement of the government in their business. And that – I think the White House thought – encouraged the markets to believe that, if they went belly up at some point, the government would step in. So, I think what the president was trying to do here was to send a different signal. And that is no. We’re not responsible for Fannie Mae and Freddie Mac. They were trying to get the markets to believe during this period that there really wasn’t a connection between the United States government and Fannie Mae and Freddie Mac, and the markets simply would not believe it. And the markets turned out to be right, because now we find, when they have gotten into financial trouble, that in fact the government did step in and back them. And this has happened before. I mean, the markets are not crazy, and they are not – they are not particularly prescient. They just look at what’s happened in the past. And in the 1980s, the farm credit system had financial difficulties. And, of course, that was also a government-sponsored enterprise. And, of course, the government stepped in and bailed them out. So, the markets look at that, and they look at what Fannie and Freddie are in relation to the government, and they say, well, this is going to be the same thing. The U.S. government is never going to allow one of these organizations to fail. And the markets, of course, turned out to be right. We are not allowing them to fail.

LAMB: Again, help us understand how the left and the right come together, on both ends of this, for it and against it. Bill Greider, a liberal writer for The Nation Magazine – found this on TheNation.com – just six weeks ago wrote this.

”So much for market discipline. For everyone else, Washington recommends a cold shower. Talk about warped priorities! The government puts up $29 billion as a sweetener for J.P. Morgan, but only can come up with $4 billion for Cleveland, Detroit and other urban ruins.… A generation of conservative propaganda, arguing that markets make wiser decisions than government, has been destroyed by these events. The interventions amount to socialism, American style, in which the government decides which private enterprises are too big to fail.”

WALLISON: Yes. Well, Fannie Mae and Freddie Mac are sui generis in this respect. And that is, it was always clear to me, and to a lot of other conservatives, that the government was going to bail them out if they got into difficulty. And that’s why they would get into difficulty, because there wasn’t any market discipline. We believe – and I think most economists believe – that the best way to control risk in private companies is to make sure the market is at risk. And so, they will not get the funds that they need, if they are taking risks, and the market is wary and interested in the steps that they are taking in their business before it will lend them any money. But when they’re backed by the government, that doesn’t happen. And that’s how – at least in my mind – we get this kind of corporate welfare that we’ve had with Fannie Mae and Freddie Mac in particular.

LAMB: But what about the bailing out of a Bear Stearns, or …

WALLISON: Well you know all of these things have their reasons, which are somewhat different. The Bear Stearns issue – and I happen to agree with that, because at the time the Bear Stearns bailout occurred, the market, the international financial markets, were in a panic. And there was for the first time, certainly in my lifetime, and probably for the first time since the Great Depression, there was real concern worldwide in the stability of all of the major financial institutions in the world, in the global capital markets – the major banks in Europe, the major banks in the United States, the investment banks in the United States and many other such institutions. And I think the fear was, at the Treasury Department and at the Federal Reserve, that if Bear Stearns – which was not one of the larger investment banks in the United States – but if Bear Stearns failed, the panic that was current in the market at the time would cause investors to run to all these other financial institutions and start withdrawing their funds – in other words, runs throughout the world. And they hoped to prevent that by showing that the government will step in and stop that from happening. This actually was the right thing to do under the circumstances. And with all respect to Bill Greider, if the government had not done that, the people of the United States and the people in the developed world, generally, would be far worse off now, because there wouldn’t be – many of these financial institutions would have failed, and there wouldn’t be the financing available that is necessary to keep our economies running.

LAMB: Do the people running these institutions ever pay a price? It seems like they walk out with these tremendous severances …

WALLISON: Yes.

LAMB: … multi-millions of dollars they take out, and just go on with life while everybody else gets punished.

WALLISON: Yes, well, this is – this, unfortunately, is part of the process of recruiting executives very frequently. They get contracts. I’m not justifying this in any way. But in order to recruit a high-powered executive, you have to sign a contract with that person. And frequently, the contract says, unless you do something wrong, if you’re dismissed by the company, we will pay you a certain amount as a severance. Again, I don’t want to justify it, but if you go through each of these conditions, each of these cases, case-by-case, I think you’ll find that that’s what happens much of the time. And it’s happening again with Fannie Mae and Freddie Mac, because their two top executives, according to today’s newspapers, may walk away with almost $15 million each as severance – for managing these companies down the tubes.

LAMB: What I see – the ”Washington Post” this morning has a piece. The severance packages could be worth as much as 14.9 for – is it Syron? Is that his last name?

WALLISON: Syron.

LAMB: Syron, Richard Syron, the former Freddie Mac chairman and chief executive. As much as $9.8 million for Daniel Mudd. But why, in the first place – again, I go back to the point, the government of the United States created these institutions. I know you say they were standalone companies, but they had five members of their board provided by the United States …

WALLISON: Yes.

LAMB: … by the President of the United States. Why wouldn’t there be some restriction on taking that kind of money out, when they’re supposed to be serving, in many cases, the little person?

WALLISON: Yes. Well, I think from the standpoint of the boards of directors – let’s assume the president still had five members on the board. What is the obligation of the board members? Those board members, I think, were advised by their counsel, that their obligation was to the shareholders, and not to the government. That’s one of the reasons I think why the White House decided initially to withdraw those board members, and not to appoint them anymore, because they weren’t doing anything on behalf of the United States. They were just there as kind of symbols of the government’s backing of Fannie Mae and Freddie Mac, but were not changing the policies of the company in any way.

LAMB: Let me show you a piece of paper. This is not very fancy graphics, but there are 70 members of the House Financial Services Committee. Every time you see a line through a name, that means that, in the 2008 cycle – and you can actually turn the pages here, same thing on the other side – the names really don’t matter. But out of the 70 members, 50 of them got (ph) money for their campaigns …

WALLISON: That’s right.

LAMB: … from Fannie Mae. And, of course, money from Freddie Mac. But we can add to that, not only do they get tremendous amounts of money all the time in the coffers, they have their PACs give to PACs.

WALLISON: Yes.

LAMB: And the PACs end up serving the members.

WALLISON: Right.

LAMB: And then you have the foundation, which was shut down last year, which I want to ask you about. And then you have the advertising. They spent $75 million a year on advertising. Why would these institutions have to advertise? Why would Fannie Mae or Freddie Mac have to spend $75 million on advertising?

WALLISON: A very good question. And in fact, until they ran into their financial difficulties, there were many in the financial world, including mortgage lenders, who believed that Fannie and Freddie were trying to get into the business of originating mortgages, and so, were trying to make themselves familiar to the American public in general as good guys. So, they were doing a lot of kind of public service advertising, and trying to tell the American people that a Fannie Mae or a Freddie Mac mortgage would be something they should want. They never did get into the mortgage origination business. They stayed in the business of buying mortgages from other lenders. But that was only because they ran into financial difficulties in the early 2000s. That’s why they were advertising. And all of these payments to Congress, that’s only part of the story. This was truly a culture of corruption. This is the kind of thing that, say, John McCain, who is running against the culture of corruption in Washington, can point to as a perfect example of what is wrong with this town. These organizations were made out of federal backing, taxpayers’ backing. They were made into powerful organizations. And their executives and their shareholders took tremendous profits out of these companies – again, because of the backing of the shareholders. They then took some of these profits, and they turned it over through campaign contributions to the people on the committees in Congress, who were supposed to be supervising them …

LAMB: By the way, in 2005, total lobbying expenditures, Freddie Mac – this is not for Fannie Mae, and I want to ask the difference between the two – was $12,560,000.

WALLISON: Yes. Oh, that surprises me it’s so low.

LAMB: That was actually – their highest year was 2004. It was close to $16, $17 million.

WALLISON: Yes. Well, it depends on the issues that were before Congress at that time. They hired just about every lobbying firm in Washington, D.C.

LAMB: At one point, there were 42 outside lobbyists.

WALLISON: Yes. And one of the reasons they did that is, not that they needed 42 outside lobbyists. They just wanted to keep anyone else from having lobbyists. And they practice a very tough business in politics, very tough on individuals who are critics. And a critic could get in a great deal of trouble. There were people whose careers had been ruined by criticizing Fannie Mae and Freddie Mac. And I personally happen to be very fortunate that I’m working at a place like the American Enterprise Institute, because they were not intimidated by Fannie Mae and Freddie Mac when I began to criticize those two companies, but they made a run at me in other aspects of my life, including a board of directors that I was on. And …

LAMB: Where was that?

WALLISON: I was a director of the Mortgage Guarantee Insurance Corporation, which is a mortgage insurer, and dealt regularly with Fannie Mae.

LAMB: And in what way? How would you deal with Fannie Mae?

WALLISON: Well, they guarantee, they insure mortgages that Fannie Mae makes. Fannie Mae makes a mortgage that has more than an 80 percent loan-to-value ratio. They are required by statute to have mortgage insurance for the remaining 20 percent. So, that’s – the mortgage insurance business relies very much on Fannie Mae and Freddie Mac for much of their business. And it came to pass that the president of this mortgage insurance company went to speak to Fannie Mae about the fact that they weren’t being selected as a mortgage insurer. And he came back to the board meeting that I was at, and he said, ”Well, we were told that they only like to deal with companies that are friends of theirs. And with Peter Wallison on your board, we just don’t regard you as a friend anymore.” So, I resigned, right then and there. But it is to me an example of the kind of thuggery that these companies were capable of. And they did that all through Washington, so that the media in Washington and individuals in Washington, and people in Congress who wanted to stand up to them, were under threats all the time.

LAMB: The next one, Public Radio did a report in September – actually, it was in July. And they just had this one line in here. It was a piece by Peter Overby. ”A rival lobbyist once described Fannie Mae as a political organization that happened to be in the mortgage business.”

WALLISON: Yes.

LAMB: I mean, you had people coming out of the Reagan administration, like Ken Duberstein – you worked in the Reagan administration – he went on their board. Ann McLaughlin Korologos was on their board.

WALLISON: Right.

LAMB: She was secretary of labor back in those years. There’s a lot of other Republicans. John Buckley came out of one of the campaigns from the Republican side and went to work over there.

WALLISON: Right.

LAMB: What …

WALLISON: This …

LAMB: I mean, what’s – how does this happen? Where are the morals of people who have been in the government? They know they’re taking this kind of money. And they know that they are allegedly in the business of helping – again, how many times have we heard it – the little people who can’t get mortgages.

WALLISON: Yes. It’s very sad. It’s sad that people are willing to do this. But the trouble is that this was known. This was known to everybody in Washington. This was known to the media. Where was the ”Washington Post”? Where was the ”Washington Times”? Where was the ”New York Times” These things were known. But Fannie and Freddie are huge advertisers in all of those media. Maybe that’s the reason why all of this stuff was not exposed. On the other hand, there’s the National Public Radio, which presumably doesn’t have major advertising from Fannie and Freddie, or didn’t at the time. And they didn’t expose it either. So, it is a very troubling thing to see that something as serious as this, which everyone in Washington knew about, everyone who was on the inside in Washington knew about, refused to do anything about. That’s why you really do need a political revolution, if you will, someone coming in at the top who says, ”I’m going to change the way this town does business.”

LAMB: Well, let me – and I don’t mean to be accusatory toward any individual, but just take the secretary of the Treasury, Hank Paulson. He used to run Goldman Sachs. A whole bunch of Goldman Sachs CEOs have been involved in all this process.

WALLISON: Yes.

LAMB: Wikipedia site says he’s worth $700 million. He served on the Financial Forum, or whatever they call it. TIME Magazine called it the most powerful organization in town, 20 big financial institutions. One of those on there besides Goldman Sachs is Merrill Lynch. The guy who was brought in now to run Fannie Mae is Herb Allison, who used to be the finance chief of the McCain campaign in 2000. He came out of Merrill Lynch. He’s now running Fannie Mae for the government. What are the – and I’m not impugning his motives. But it seems like the financial community is all interconnected. And the person that just wants the mortgage out there is the one that is least thought of in this process.

WALLISON: Yes. Although I certainly wouldn’t blame Herb Allison – yet.

LAMB: I’m not blaming anybody. I’m just saying, it’s all a matter of people who are in these banks, all these banks around the United States are all interchanged with these companies.

WALLISON: But you do – you do need to have knowledge of the financial markets in order to function in the financial markets. You have to know the people, and you have to know the way the markets work, and so forth. We actually are very fortunate that Paulson is there right now, because the two earlier secretaries of the Treasury in the Bush administration were not people from the financial markets, and probably would have required a lot of coaching to understand what they were seeing happening. So …

LAMB: Could I, though, suggest this, and just see what your reaction is? D on’t you really have to have people on these boards that will stand up …

WALLISON: Sure.

LAMB: … to the leadership, and more importantly, just ask questions?

WALLISON: Yes, absolutely. And the fact that they brought in people from Washington for these boards was a terrible mistake, but one that they could be expected to make, because they were purely political creatures. The reason they survived as they did was because they had the support of the government. So, you would want people on your board who don’t know anything about the financial markets, or anything about making mortgages, or anything about how to construct a financial system or a financial business. You don’t need those skills on your board. What you need in Washington are people who are in the Washington cognoscenti, the people who go to the cocktail parties and know the congressmen and know the senators, and can make sure that you’re getting heard when there is a challenge.

LAMB: OK. We’ve established that they spent a tremendous amount of money on advertising. They spent a tremendous amount of money on lobbying. They interchanged former presidential appointees in both Republican and Democratic administrations to the board of directors and to the staff.

WALLISON: Yes.

LAMB: They had this kind of quasi-backing – now, the full backing – of the United States government.

WALLISON: Yes.

LAMB: And then, there’s the foundations.

WALLISON: Yes. This is a very interesting – a very interesting thing, because, of course, we tend to think of foundations as (INAUDIBLE) and charitable, and in some cases, educational. But they use their foundations for the purpose of garnering what? Political support.

LAMB: OK. Let me put on the screen here some information from the Fannie Mae Foundation. Funded by $650 million in stock since 1995, and $12.5 million in cash in late 2006. Employed 105 people. Headed by Stacey Stewart, whose 2005 salary is $575,000 plus $72,000 in benefits and deferred compensation. Shut down in February of 2007. Ms. Stewart went to work inside Fannie Mae. And then, in a statement that was made by Director Jim Lockhart, who is the now-regulator of Fannie Mae …

WALLISON: Right.

LAMB: … it was just – it was kind of an off-hand comment. I was watching his news conference last Sunday, and he had eight or nine points that he made. And the eighth one was, all political activities, including all lobbying, will be halted immediately. But then there’s this one line, and it wasn’t explained. ”We will review the charitable activities.” The Fannie Mae Foundation spent $60 million there last year, giving $60 million around the country in every state and every district. I think $20 million of that was given in Washington, D.C., alone. Why did they need a foundation? And what purpose did it serve?

WALLISON: Well, it served their political purposes, like everything else at Fannie. The boards of directors served their political purposes and their foundation served their political purposes, because they gave money to community groups. And whenever there was a challenge to Fannie Mae or Freddie Mac of any kind, those community groups would write to the congressmen or call the congressmen or the senator and say, ”Don’t do anything to Fannie Mae. They’re good people. They support us. We are in your district. We do these good things for the people in your district.” So, even though the money was actually being used – probably, I assume – for good purposes within these districts, the reason Fannie Mae and Freddie Mac gave out this money was to gain the political support that it bought them in districts all over the country.

LAMB: Do you have any idea why they shut it down?

WALLISON: Yes, because I think they recognized that this was the purpose, that what they were doing – every time a challenge came up to Fannie and Freddie inside the government, a call went out to all these community groups – e-mails and telephone calls – and said, ”You better get on the phone to your congressman and let him know that, if he does anything that’s adverse to our interests, you will be very upset. And you represent X number of people in his district.” There were records of that. And presumably, when Dan Mudd came in at Fannie Mae after the accounting scandals they had, he said to himself, we don’t need this problem anymore. We’d better shut this stuff down.

LAMB: By the way, Dan Mudd is the son of Roger Mudd …

WALLISON: Yes.

LAMB: … former CBS …

WALLISON: But this is a – frankly, this is just another part of the scandalous process that was going on here. This is using essentially government money, taxpayer money, to lobby Congress indirectly through these groups. And more has happened. In the new housing legislation, one of the elements in this housing legislation, which contained the new regulations for Fannie Mae and Freddie Mac, never would have been passed, but for the fact that the Democrats wanted the housing bill aspect of this, because the problems in the housing market – Senator Shelby said, there isn’t going to be a housing bill out of this committee unless you put tough regulations of Fannie Mae and Freddie Mac in it. So, he got those tough regulations in the bill. But in addition, Congressman Barney Frank in the House wanted a special fund that comes out of the profits of Fannie Mae and Freddie Mac, and is then used for all of these community groups around the country. So, we see the same process continuing to work. Even though reform legislation was passed, it contains a nice slush fund that can be used by community groups around the country. So we see the same process continuing to work, even though reform legislation was passed, it contains a nice slush fund that can be used by the officials of Fannie Mae and Freddie Mac to reward community groups.

LAMB: You can go on Google and go looking for this Freddie Mae foundation and some of the information is still there. I did it and I just looked up one state, one year, to get an idea of the kind of money they gave away …

WALLISON: Yes.

LAMB: … and I wondered if you could fill in the blanks here, and I’m just going to read a couple of them. This is from 2006. The state of California, first one on the list is $5000 and they are all in various denominations, even $750 for somebody that travels some then, support the AFI Silver Theatre and Cultural Center’s 17 annual Larsen Latin American Film Festival that fostered cross-cultural understanding and civic dialogue. There—let me just read a couple of them. Korean churches for community development, supportive research on how Korean faith-based institutions could strengthen the cohesiveness of the communities in which they are based, building relationships between different ethnic and racial groups and supporting the community infrastructure, $10,000. Media (ph) economics for women, 16th Maxwell Award, that’s named after David Maxwell, your CEO …

WALLISON: Right.

LAMB: (INAUDIBLE) Excellence for Tierra del Sol, a 119-unit affordable rental housing project for low income people in Canoga Park, California. And then this is an interesting one: Regents of the University of California at Berkeley. A rather rich place. $35,000 approved in 2006, supportive research on the nexus between housing and schools and effective ways of integrating housing and educational policies in order to create prosperous livable communities. I can go on, and …

WALLISON: Sure.

LAMB: … this is an idea, and there are thousands of them …

WALLISON: Sure.

LAMB: … over the years.

WALLISON: Sure.

LAMB: … and that bought them very substantial political support.

WALLISON: See, ordinary corporations, of course, give away lots of money to community organizations and charitable organizations and cultural organizations, and they do this in part to support their products. So if General Motors gives a gift to a cultural organization, what they hope is that people will then think better of buying a General Motors car. Fannie Mae and Freddie Mac are different. Those gifts were given for the purpose of building political support for them, not their products because they weren’t at that point selling any products directly to the—to individuals. They were buying mortgages from banks. These gifts were given to organizations that would then, hopefully, come back and support them politically in Congress, so they were using, in effect, the taxpayer money that was backing them to gain—to buy political support in districts around the country that then reflected back on the Congressmen and Senators here in the United States. That was the process that was going on here.

LAMB: Now, you were a lawyer in Gibson Dunn …

WALLISON: Yes.

LAMB: … Crutcher—and Crutcher. That’s a—isn’t that a political …

WALLISON: No.

LAMB: I mean, aren’t there a lot of political lawyers in there? Isn’t Ted Olson there?

WALLISON: Ted is there. Yes. Ted is one and Brad (ph) Starr (ph) was a partner of Ted Olson, yes, but the — this is a — Gibson, Dunn & Crutcher is about 850 lawyers at this point, but all business lawyers and litigators, there’s very little political work done, and even in the Washington office of Gibson Dunn.

LAMB: So you didn’t lobby?

WALLISON: I never lobbied, but I think we had one or two. We may now have one or two lawyers in a 150-lawyer office here in Washington who actually lobby.

LAMB: I mean, the reason I’m bringing this up, I mean, Fannie Mae and Freddie Mac are not the only American institutions that do everything we’re talking about in this town. The connection here and the reason I’m asking you to explain it is because they were government institutions and had government sponsored people on their boards, and were backed up, even though they weren’t directly backed up, by the government money and we’ve seen how …

WALLISON: Yes.

LAMB: … the government’s taking them over. Explain this, and I know you’re on the other side politically, but just help us out on this. This was in the ”New York Times” today.

WALLISON: Yes.

LAMB: This is Tuesday, before the Sunday that this runs. Mr. Dodd, that’s Chris Dodd, is Chairman of the banking committee.

WALLISON: Yes.

LAMB: The Democratic Chairman, called the White House, accusation incredible and libel, Mr. Dodd all but accused Mr. Paulson, Secretary of the Treasury, of misleading Congress less than two months ago when the Treasury Secretary prevailed upon lawmakers to give him the authority to spend untold billions of dollars to rescue the two companies, assuring them at that time that he had no intention of using that authority. Boy, when I read that I said (INAUDIBLE)

WALLISON: Yes. That was the same thing that …

LAMB: Well, let me read some more.

WALLISON: Yes. Go on. I …

LAMB: I asked Dodd on the record you know why would you get an authority if you weren’t going to use it, quote, ”We accepted him at his word that all he needed was the authority and that he wasn’t going to exercise it, then he used this authority very aggressively. An angry-sounding Mr. Dodd said in the telephone conference call with reporters, he indicated that he would approach any future commitments by outgoing administration more skeptically, quote, ’Fool me once, your fault, fool me twice, my fault.’ Asked whether he felt duped, Mr. Dodd said, ’I was born at night but not last night. I heard experts over the last few days predicting this outcome, but I responded that I take the administration at their word to find out late Friday afternoon that it was going in this direction. It was hard to believe’.”

WALLISON: There’s a person who is attempting to fool everybody. I think he understood what was happening here. Though he wasn’t being lied to or misled by the Secretary of the Treasury. What Paulson was saying, and I thought actually what Paulson said was the truth at the time, and that is I think we thought, Paulson thought, that with the backing of the U.S. government made explicit through what Congress had authorized in July, there wouldn’t be any need to back—to come in specifically and take over Fannie and Freddie. But what they found was that the markets didn’t quite believe that Fannie and Freddie were going to pay all of their obligations, and what they found as the days went on was that the spread of interest rates that Fannie and Freddie were paying over treasury rates was gradually growing, and as it grew, it meant that mortgages in the United States would become more expensive because if Fannie has to pay more for its money, then the banks that they lend to will have to pay more for their money, and people will have to pay more for money when they buy homes. So what I think Paulson saw happening was that he had to reassure the markets that the government was actually behind these institutions, and the only way to do it was to actually take them over, and I think he also knew from the investigations that they did of Fannie and Freddie’s financial condition that they were close to if not insolvent. So I don’t think Paulson misled anyone in the Senate. I think what he said was you give me this authority, I probably won’t have to use it because the markets will believe that I could come in at any time and take over these companies, and therefore they will know that their loans will be repaid. Well, they didn’t quite believe it, and we have read during the recent weeks that the Bank of China was beginning to sell off part of its portfolio of Fannie and Freddie’s. Fewer people were showing up at the auctions for Fannie and Freddie securities. They were bidding—they weren’t bidding as aggressively, so Fannie and Freddie were beginning to have to pay more and more for the money they were borrowing, and the pattern was becoming very clear, so treasury really had to act. Now, I happen to believe they did the wrong thing. He should not have appointed a conservator for Fannie and Freddie. He should have appointed a receiver for Fannie and Freddie. A receiver would be able to modify their business model substantially, and even in his statement Paulson said that they have flawed business models. You, I think, read part of that. They have flawed business models. That is true. That’s why I thought from the beginning that they were going to be causing trouble for everyone because they are partly profit-making companies and partly companies with a government mission with government backing. Those two things can’t go together in the same institution. So, Paulson should have moved in and taken them over with a receiver so he could have changed that business model. He didn’t do that.

LAMB: Let me show you and the audience places you’ve seen …

WALLISON: Yes.

LAMB: … we have video of both Fannie Mae and Freddie Mac. Their institutions are both here in Washington. One of them’s out in the plain …

WALLISON: Right.

LAMB: … one of them’s in—out on—what is it, Wisconsin Avenue.

WALLISON: Yes.

LAMB: So Freddie Mac’s on the screen right now, and that’s the one out in the …

WALLISON: Yes.

LAMB: … plain in Virginia in the suburbs. Do you have any idea how many people work there?

WALLISON: No, I don’t.

LAMB: They also had …

WALLISON: The reason this may …

LAMB: … they had a foundation and you know it’s a bipartisan kind of thing.

WALLISON: Yes.

LAMB: Dennis Deacon, senior former Senator, was a former board member, David Gribben , who was a Richard—a Dick Cheney aid, was a former board member and George Herbert Walker Bush aid, Harold Ickes was a former board member, Clinton advisor, Ron Emmanuel, former board member, Clinton senior advisor, and then he—Ron Emmanuel received contributions when he got into the House …

WALLISON: Yes.

LAMB: … from the lobbyists, and Susan Molinari, former Congresswoman, Republican, was an outside lobbyist for Freddie Mac. Here’s Fannie Mae, and as we look at Fannie Mae, which is …

WALLISON: Yes.

LAMB: … quite a building you can see when you drive up Wisconsin Avenue. What is the difference between Freddie Mac and Fannie Mae? We’ve been talking a lot about Fannie Mae.

WALLISON: Well, I would say there isn’t any substantial difference at all between them. Fannie is the larger, the more politically active of the two, but as between them, they have exactly the same charters and they’ve done exactly the same thing, and to some extent, they are in competition with one another.

LAMB: Why do we need two?

WALLISON: Well, I think it was good to have two because they were in some competition. If we only had one, that would be a monopoly. We have had two. Some argue that they were in monopoly pricing anyway, but that’s not been established yet. In any event, two is always better than one because it does produce a certain degree of competition between these two government-backed organizations.

LAMB: Another article this morning from ”The Wall Street Journal.” Home loan banks draw focus or made rescue plan.

WALLISON: Yes.

LAMB: Now, it starts out by James Haggerty writing the Fannie Mae and Freddie Mac takeover raises questions about another set of institutions started by Congress to help finance housing. There are 12 regional federal home loan banks. You know a generalist, and I am a generalist, drowns in all this language …

WALLISON: Yes.

LAMB: … and all these institutions, and you get on, there are 12 of those federal home-owned banks across the country. They often have local board members, bankers, in many cases.

WALLISON: Yes.

LAMB: GSEs?

WALLISON: Yes, of course. The government sponsored …

LAMB: Government service—government sponsored enterprises.

WALLISON: Right.

LAMB: And also you add Jenny Mae into that, which …

WALLISON: Well, now that is a government agency. That’s not a government sponsored …

LAMB: That replaced what Fred—what Fannie …

WALLISON: Yes.

LAMB: … was in the beginning.

WALLISON: Right.

LAMB: Under HUD.

WALLISON: Right.

LAMB: What about these federal—no, I mean, you know …

WALLISON: (INAUDIBLE)

LAMB: (INAUDIBLE) no idea.

WALLISON: Look, Ronald Reagan said the closest we’ll ever come to immortality in this life is a government agency, and the federal home loan banks are a perfect example of that because they were established in the depression era to assist the development of a mortgage market and to help people get mortgages, but since then we have developed a very sophisticated mortgage system here in this country, and we don’t need the federal home loan banks. But they provide subsidized financing to banks, and the banks don’t want to give up this subsidized money that they received from this government-sponsored enterprise.

LAMB: Do you have any idea how much money these individual board members make on these banks and on those …

WALLISON: No.

LAMB: … on the …

WALLISON: No.

LAMB: … Fannie Mae, do they get paid?

WALLISON: Sure. In Fannie and Freddie they get paid, and it’s true also in the federal home loan banks. I just don’t know how much that is.

LAMB: When the stock has fallen at Freddie Mac and Fannie Mae from 65 roughly, $70 down to below a dollar …

WALLISON: Yes.

LAMB: … in less than a year …

WALLISON: Yes.

LAMB: … did the board members protect themselves?

WALLISON: I have no idea, but if they—I don’t know whether they got stock compensation. I don’t know whether they got stock options or anything of that kind …

LAMB: What would you to protect yourself …

WALLISON: (INAUDIBLE) major cash.

LAMB: … to make sure that if all that is going on right now happened that you got your money?

WALLISON: Well, I—if they had stock, if they were given stock or they had bought stock when they became directors, they probably should not have sold that stock while the stock was going down. I don’t know, as a matter of fact, whether they have. I haven’t ever looked into that, but one way to protect yourself is if you see a disaster looming in the future and you’ve got a substantial amount of that stock, you would sell it off. But I have no idea whether they did that.

LAMB: You’ve been around this town for a long time.

WALLISON: Yes.

LAMB: How much time do you spend in the town now?

WALLISON: About half the year.

LAMB: What do you do for AEI?

WALLISON: I write. I organize conferences. I speak from time to time. When I say half the year, I’m here half the year. I work 100 percent of the year, but in Colorado where I live the rest of the time, and I’m doing all of this work for the American Enterprise Institute.

LAMB: Now, people on the other side of politics would say AEI is funded by American industry, has its own …

WALLISON: Not quite. N ot quite. It’s got a third of its funding comes from corporations, a third comes from individuals, and a third comes from foundations. So it is not in any sense connected with corporations, and in fact, if anything, if there’s any group that you would identify as connected with AEI, it would be entrepreneurs. This is a free market organization.

LAMB: How would you explain people looking in from the outside to Washington, D.C. right now, seeing these stories, and we have just skimmed the surface.

WALLISON: Right.

LAMB: One word you could apply to our summer is just greed.

WALLISON: Yes.

LAMB: Where is it coming from in this society? Why is this happening in this town now?

WALLISON: Well, I’m not sure it’s only now, but it’s certainly become more prominent now. I’ve never understood this myself, frankly. I mean, there are—there seem to be two classes of people. There are people who keep score based on money, and there are people who keep score based on success in some other areas like academic success and so forth. I deal a lot with academics. I hope to rise to the level of an academic some day in my time. And those are not people who are motivated by money. Those are people who are interested in learning, in producing things that are useful. But other people keep track according to money, and I’m afraid that’s why we have so much, I would call it greed, going on here in Washington when people are trying to use their positions to enrich themselves.

LAMB: Why hasn’t the Congress done more than it has?

WALLISON: Because the Congress is part of the problem rather than part of the solution.

LAMB: Let me read the last paragraph of today’s editorial in ”The Wall Street Journal,” this being Tuesday.

”Mr. Frankn it turned out”… Barney Frank is their Chairman of the Financial Services Committee in the House, ”has had many accomplices from both parties in his protection of Fan and Fred, but he was and is among the most vociferous and powerful. In any other area of American life this track record would get a man run out of town. In Washington he’s hailed as a sage and his history of willful error will be forgotten faster than taxpayers can write a check for $200 billion dollars.”

WALLISON: That’s powerful language.

LAMB: Not to single out Barney Frank, and listen, he’s had many hours on this network so he’s had his time to talk. He—there were journalists saying both Republicans and Democrats.

WALLISON: Yes. And it’s true. It’s true. This could not have happened if both parties weren’t implicated, and I think that raises a lot of questions about our campaign finance system in this country. I think there are ways we could address this problem through the campaign finance system. In fact, I’ve written a book about the subject that’ll be out in April. Maybe we’ll have a chance to talk about it then. But the Congress is part of the problem here. They are implicated in creating Fannie and Freddie, keeping it alive, protecting those two companies against attack from any side within the political process and in the private sector, and they get benefits from Fannie and Freddie. You’ve mentioned many of them. They get campaign finance reform. How they get campaign finances, they hire the staff of these people, they hire the lobbyists who are the friends of congressmen and senators, they give out money to community groups who then in turn support those congressmen and senators who are their friends. It is a very unpleasant thing to watch, and ultimately, it is a way for Congress, without actually appropriating any money, to direct money to their friends, and that’s why I mentioned this thing that Barney Frank was so anxious to get into his bill, this idea of a slush fund that would be available to pay to community groups to support housing, maybe. We hope its housing and not other things, but ultimately it is a way for the Democrats, at least in this case the Democrats, to direct the funds to the groups that support them, and it’s not even appropriated funds. It’s not anywhere.

LAMB: Peter Wallison, thank you very much for your time.

WALLISON: Thank you.

END

Hat tip:
Jim Dillian,
Boone, NC

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Mr. Obama reiterated this view earlier in the week while traveling in the Middle East, in an interview with ABC's Terry Moran. Mr. Moran asked the Illinois Democrat whether -- "knowing what you know now" -- he would reconsider his opposition to last year's surge of U.S. troops in Iraq. "Well, no," Mr. Obama replied.

What Mr. Obama "knows now" is that the surge he opposed has saved Iraq, much as Harry Truman's airlift saved Berlin and underlined America's intention to defend Europe throughout the Cold War. The surge has also saved American lives in Iraq, with combat-related deaths (so far, there have been seven this month) at an all time low.

Mr. Obama offered his own unwitting testimony to this fact by not donning body armor upon his arrival in Baghdad and during a helicopter tour with Gen. David Petraeus.

"There have been few if any attacks of late on our aircraft, and the situation did not require them to be wearing body armor," explained Gen. Petraeus' spokesman.

Mr. Obama also knows that Gen. Petraeus opposes setting a fixed timetable for withdrawing U.S. forces from Iraq. This military judgment ought to count for something, particularly since Congressional Democrats have long scolded President Bush for failing to pay sufficient heed to the advice of generals such as former Army Chief of Staff Eric Shinseki. Yet Mr. Obama, who has always been careful to cite the views of military commanders to justify his 16 month withdrawal schedule, now says that heeding less congenial military advice would mean an abdication of his responsibilities as a prospective commander in chief.

The Obama campaign now makes much of the fact that Iraqi Prime Minister Nouri al-Maliki seems to have endorsed the idea of a timetable for withdrawal, with 2010 as the approximate date. This is being played as a great political coup for Mr. Obama -- which, we suppose, it is, if only because the media plays it that way.

But the significant debate is not over whether and when the U.S. will withdraw. It's over whether the U.S. will win. In his Berlin speech, Mr. Obama was at his most forceful when he insisted that "this is the moment when we must defeat terror," adding that "the threat is real and we cannot shrink from our responsibility to combat it." This is well-said and true.

But it squares oddly with a political campaign whose central premise is that losing in Iraq -- and whatever calamities may follow -- is a matter of little consequence to U.S. or European interests. It squares oddly, too, with Mr. Obama's broader promise to "stand for the human rights of the dissident in Burma, the blogger in Iran, the voter in Zimbabwe" and virtually every other global cause.

It is hard not to be moved by the sight during the speech of hundreds of American flags being waved, rather than burned. Then again, the last time a major American political figure delivered an open-air speech in Berlin, 10,000 riot police had to use tear gas and water cannons to repel violent demonstrators. It was June 1987, the speaker was Ronald Reagan, and his message was: "Mr. Gorbachev, tear down this wall." Press accounts characterized the line as "provocative"; the Soviets called it "war-mongering"; 100,000 protesters marched against Reagan in the old German capital of Bonn. Two years later, the Berlin Wall fell.

Reagan's speech is a lesson in the difference between popularity and statesmanship. Watching Mr. Obama yesterday in Berlin, and throughout his foreign tour, was a reminder of how far the presumptive Democratic nominee has to go to reassure people he is capable of the latter -- "people," that is, who will actually get to cast a ballot in November.

Wall Street Journal
July 25, 2008; Page A14

Comments are welcome at redstatepatriot@hughes.net. Please include the title of the article as your subject line. Selected responses, in whole or part, may be published (appended to the article).
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Response by Len Salonsky:

The Europeans have a long history OF BEING WRONG: geopolitically, socially, economically, and immigration-wise. Many Americans, nevertheless, continue to incorrectly believe that European socialism and pacifism are where America should go.

Most of these Americans are collectivists ("From each according to his ability to each according to his need."- Karl Marx)

What are they smoking? Ironically, as Europe is finally moving away from their FAILED socialist programs, foolish American collectivists are insisting that we EMBRACE socialist policies despite their virtually universal failure, and the resultant human misery that they have caused throughout history.

Without American intervention there would have been no speech in Germany by Obama, whose ancestors would have been executed or enslaved by the Third Reich. Such nuances are LOST on those Euro-sycophants who amazingly feel that America can do no right and that the Europeans can do no wrong. IS that why the Europeans BEGGED America to intervene in Bosnia to end the conflict there, with FORCE?

A force that the Europeans are INCAPABLE of delivering? How convenient to depend on America for a bailout (without ever offering America any compensation for the (lives or the) expense of such military "insurance." Europe never paid America back for World War II, but they'll gladly burn the American flag.

For now, if the Europeans are waving American flags for some cause, I'll probably be opposed to it. If they are burning American flags for some cause, I'll assume that cause is just. History will bear me out.

There will come a time when the Muslim demographic burden in many European countries, because of the European welfare state mentality, will threaten to overwhelm those nations who have foolishly allowed Muslim immigrants to become a substantial portion of their population. Many pundits expect that Europe will be renamed "Eurabia" in the foreseeable future. This time an American "rescue" is not in the cards, and Europe will suffer the horrific consequences of its stupidity.

Comments are welcome at redstatepatriot@hughes.net. Please include the title of the article as your subject line. Selected responses, in whole or part, may be published (appended to the article).

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