Breakthrough: garbage can be improved

Our overlords in Washington have done something unusual. They have taken a pile of garbage and improved it. It's still garbage, but it doesn't smell as bad. It's also a breakthrough in another respect: Yes, they're going to fork over billions of dollars of taxpayer money, but this timne they're going to ask the recipients to pay back some of it.

In the future, historians will look back and find that the sequence of events went down like this:

1. The Bush administration, eager to expand its voter base, drove down interest rates to allow more low-income people, especially blacks, to buy homes.

2. Mortgage lenders saw what was happening and helped the process along by winking at buyer qualification standards that had previously been enforced. The lenders could do this with impunity because they did not bear any of the increased risk. Two hours after they wrote a new mortgage, they sold it to Fannie Mae or Freddie Mac. The higher risk was now somebody else's problem. The lender used cash from Fannie and Freddie to write more mortgages.

3. Fannie and Freddie, based in Washington, bundled mortgages from Kalamazoo with mortgages from East St. Louis and San Juan de Capistrano, and sold them as bonds. Einstein couldn't have figured out what the actual risk was in any of those bonds. In the old days, the level of risk had been a vital element in determing the price of a bond. In the new regime, Fannie and Freddie sold the bonds for what the market said they were worth. The buyers actually had no idea what they were worth. They only knew that the market for mortgage-based derivatives was going up.

4. Fannie and Freddie, flush with money, ladled it out to politicians who were protecting their interests in Washington, two of them being Sen. Chris Dodd and Rep. Barney Frank, both Democrats. Fannie's and Freddie's interest was to see the gravy train roll on. Their executives, mostly Democrats, were getting rich through lavish bonuses, and Fannie had become a hiring hall for out-of-work Democrats.

5. Some of the low-income people who had bought homes under the new regime began defaulting on their loans. The defaults became a deluge. Vintage Wall Street firms such as Lehman Brothers and Merrill Lynch crashed. Fannie and Freddie were seized by the government. Even in the abyss, government was growing.

6. A panicked Bush administration, on the even of a presidential election, sought enactment of a $700 billion buyout of the failed mortgages, which would rescue private and quasi-government (Fannie and Freddie) busineases at the expense of taxpayers while putting government in the banking business. It's possible that those mortgages will someday regain some value, But it's not possible to assess the probability. Nevertheless, media fans of the Bush regime pounced on this, predicting future "profits" for the taxpayers on their $700 billion "investment." When politics innnnntrudes, conservatives go astray, but socialist euphoria never wanes. The herd of independent minds was cheering the Bush proposal.

7. Republicans in the House, apparently the only political faction in America that still believes in the efficacy of markets, raised a stink. The deal fell apart.

8. In overnight negotiations between newly rational politicians, the proposed deal was transformed. The socialists had suffered a setback in their struggle to install a command economy. One of the other losers is ACORN, a street-wise organization beloved by Barack Obama and many other Democrats. In the original bailout, ACORN was to get 20 percent of any future profits on the failed mortgages. Now, it won't. Those who have a habit of making dead people and dogs vote will have to look elsewhere for their street money.