A fairy tale for our time

Once upon a time in America, how you lived your life mattered.
If you went to school, got a part-time job, graduated from college and got a good job, you were on your way. Your income made it possible for you to buy a house. If you had managed your life in such a way that you easily could handle your monthly bills, the mortgage that you got to pay for your house carried a modest interest rate.

If you did well at your job, you got a better job at a higher salary. So you got married. Now that you could see a future for yourself, with a family, you worked even harder, and got a still better job, with higher pay. So, you became a father, which made you work even harder because you wanted to take your kids to baseball games.

You moved up the ladder at work. More money, more respect, more invitations, more trips, a better life.

Then, all of a sudden, without you even knowing it, your luck turned.

The Democratic Party decided to reward the minorities and low-income people who had been voting for its candidates for many years, and to make sure their children stayed loyal to the party.

So, way back in the 1970s, the Democrats passed the Community Reinvestment Act, which forced lenders to write mortgages for low-income people. It didn't matter why those people had low incomes. Bad luck? Lazy? Drunk? In jail? It didn't matter. It also didn't matter if you had paid your bills on time. If you were poor you could get a low-interest mortgage. How you had lived your life didn't matter anymore.

I could make a detour here and write that this sent a bad message to young people. You didn't have to take care with your life to get a nice mortgage later on. But I won't do that because I want to get on with this fairy tale.

What happened here is called liberalism. One of the things you have to realize about liberalism is that it doesn't have to make sense. It just has to feel good. The liberal has to be able to say he helped somebody out today. It doesn't even matter if the helping hurts.

As the years went by, the Democrats, in and out of Congress, made more and more rules for the lenders. More and more people got mortgages, whether or not they had taken care with their lives.

One reason the lenders got by with writing more and more mortgages for poor people is that they didn't have to worry any more about the risk they were taking. In fact, the risk was so low that you would have needed a magnifying glass to find it.

Isn't that something? The lenders made more and more risky loans, and the risk they were actually taking almost vanished. No wonder people have started thinking that politicians are sleight-of-hand artists. They had taken something that used to be thought of as dangerous and made it disappear. Maybe they'd do that with rattlesnakes.

If you looked closely, though, you found that the risk didn't vanish. It just moved away. It had become somebody else's problem.

As soon as the lender wrote the mortgage, the lender sold it to Fannie Mae or Freddie Mac, two companies with funny names that the government had set up, but didn't actually run. They were actually run by politicians, who aren't used to thinking about things like risk, costs, or profit. The reason is, when politicians want money, they can take it away from people like you, who have taken care with their lives, any time they want. They think costs are something other people worry about. That's because people who have taken care with their lives are paying their costs, whatever those costs are.

Besides, Fanny and Freddie didn't have to worry about risk either. They put mortgages in bundles and sold them as soon as they could. The risk moved away again.

This kept on going, and growing, for many years.

Then, some people stopped paying their mortgages, and word got around. Soon, bankers who had loved mortgages for years, started to sell them for whatever they could get, and the banks started going out of business because they had bought a lot of mortgages that were losing value.

This is the strange part. The people who got stuck with all those mortgages when they lost their value were the masters of the universe at Merrill Lynch, Lehman Brothers and other big investment banks that were famous for making people rich, especially the people who ran them.. A lot of the masters of the universe don't have jobs now, but for some reason they're still rich. But you won't find Merrill Lynch or Lehman Brothers in the telephone book any more.

It's going to cost a lot of money to pay for the damage. The politicians wrote up a bill for $700 billion. The people who will pay that bill are the people who have taken care with their lives.

It's like I told you before. Liberalism doesn't have to make sense. It just has to feel good. The politicians want to help out.