Obama and his colleagues grope for villain

The bloated egos attending the G20 conference in London congratulated themselves on a historic accomplishment Thursday, having pledged $1.1 trillion they don't have to combat a problem they continue to misdiagnose.

The new demon they are going to slay is secret international banking that allows high-rollers to move money anonymously.

What did secret banking have to do with the oollapse of the U.S. housing market and the resulting recession?

Probably nothing.

What about hedge funds, which also had a target pinned to their backs? Probably nothing.

If the G20 dandies really wanted to deal with the basic problem, they would have called for the immediate abolition of Freddie Mac and Fannie Mae. Had those two government-sponsored enterprises not existed, millions of bad credit risks would not have gotten mortgages, the housing bubble would not have happened, and international dandies would not now be pretending to pick up the pieces of a wrecked world economy.

Why do the dandies ignore Fannie and Freddie? Because any suggestion that Fannie and Freddie were central to the debacle would rankle Barack (Alexander the Great) Obama, whose Democrat Party used both Bannie and Freddie as a hiring hall for out-of-work politicians and a source of big-time campaign contributions.

What Fannie and Freddie did was to separate home mortgages from the traditional constraint of risk. Under the previous system, a local lender would assess the credit-worthiness of applicants. Those who had a long record of paying their bills on time, as well as adequate incomes, received mortgages at modest interest rates. Those who didn't have good records had to pay higher interest rates, and sometimes were refused any mortgage.

All that changed when Fannie and Freddie came on the scene. Now, local lenders cared little, or not at all, about credit-worthiness because they held the morgage for only a day or two before selling it to Fannie or Freddie.

Fannie and Freddie didn't have any big worries either becaue they quickly bundled mortgages as securities and sold them to investment banks, which bundled them again. The concepts of risk and credit-worthiness vanished, only to reappear suddenly and ominously when the American economy flattened out and the bad risks began defaulting on mortgages.

Government policy and public pressure groups such as ACORN, with whom Obama had a long relationship, were major contibutors to the debacle. Head fakes, like the ones so absurdly on display in London, won't change that history.