Financial Crisis

October 1, 2008

October 1, 2008

Hello everybody out there in farm country. This radio commentary is brought to you by the Renewable Fuels Association, Wal-Mart Stores, Monsanto, and John Deere. They are all friends, supporters, and allies of a healthy farm economy and prosperous rural America. Thank you.

How could this happen? It started with Congress pushing our lending agencies to make home loans to people with little or no money down. Their financial history was not carefully checked. Without any thought of the risk, lending institutions were happy to heed the wishes of Congress because they could sell those loans to Fannie Mae and Freddie Mac. Fannie and Freddie, with their relationship with the Federal Government, wouldn't have to worry. The records show that in 2002 only 3% of home loans were sub-prime. By 2006, that percent had exploded to 30%. We all received letters in the mail offering to "refinance your home, cut your payments in half for 5 years, no interest for 1 year."

Reckless lending!

I've never bought a house or a farm without at least 20% or 30% down. I'm not suggesting that no one had any concern about the risk of these practices. President Bush, with all the criticism that he gets, tried in 2003 to reform Fannie and Freddie. President Clinton also tried but could not get it done.

Reform legislation actually passed the House but it was blocked in the Senate by Senator Chris Dodd. He is the Senator who has received more campaign money from Fannie and Freddie than anyone. In 2005, Senator John McCain and 3 other Senators introduced reform legislation. It was quickly blocked. Although there were Republicans and Democrats on both sides of this issue, it was never really taken seriously by the legislative body. Now it is serious and a little late.

Also, I would suggest that this crisis is bigger than the housing bubble. We're just living way beyond our means. The federal budget deficit is way out of control. It's simple. We need to stop spending so much money. Certain programs referred to as entitlements are on automatic pilot -Social Security, Medicare, Medicaid. The Congress doesn't have to appropriate the money. It just flies out the door. Such spending will break us. I'm a West Point graduate but I think we should get a handle on our military spending. We have troops stationed all over the world. We are the "Policeman to the World." Well, it is time some other countries took some responsibility. We can't do everything.

As individuals, maybe we should cut back on the credit card use. We buy a lot of stuff that we don't really need.

Our culture of spend, spend, spend cannot be sustained.

Until next week, I am John Block from Washington.