The second reason is that any honest inquiry would soon reveal the shocking truth that Congress itself is the primary cause of the problem. By following the socialist path and presuming to protect or benefit their constituency, they have suspended and violated the natural laws that drive a free-market economy. In so doing, they created a Frankenstein monster they could not control. The more they tried to tame the thing, the more destructive it became. As economist Hans Sennholz has observed:
The real cause of the disaster is the very financial structure that was fashioned by legislators and guided by regulators; they together created a cartel that, like all other monopolistic concoctions, is playing mischief with its victims.1
A CARTEL WITHIN A CARTEL
Sennholz has chosen exactly the right word:
HOME, SWEET LOAN
83
function without Congress standing by to push unlimited amounts
'lender of last resort' to create money out of nothing for Congress to borrow. This comfortable arrangement between political scientists and monetary scientists permits Congress to vote for any scheme it wants, regardless of the cost. If politicians tried to raise that money through taxes, they would be thrown out of office. But being able to 'borrow' it from the Federal Reserve System upon demand, allows them to collect it through the hidden mechanism of inflation, and not one voter in a hundred will complain.
The thrifts have become the illegitimate half-breed children of the Creature. And that is why the savings-and- loan story is included in this study.
If America is to survive as a free nation, her citizens must become far more politically educated than they are at present. As a people, we must learn not to reach for every political carrot dangled in front of us. As desirable as it may be for everyone to afford a home, we must understand that government programs pretending to make that possible actually wreak havoc with our system and bring about just the opposite of what they promise.
After 60 years of subsidizing and regulating the housing industry, how many young people today can afford a home? Tinkering with the laws of supply and demand, plus the hidden tax called inflation to pay for the tinkering, has driven prices beyond the reach of many and has wiped out the down payments of others. Without such costs, common people would have much more money and
purchasing power than they do today, and homes would be well within their reach.
SUMMARY
Our present-day problems within the savings-and-loan industry can be traced back to the Great Depression of the 1930s.
Americans were becoming impressed by the theories of socialism and soon embraced the concept that it was proper for government to provide benefits for its citizens and to protect them against economic hardship.
Under the Hoover and Roosevelt administrations, new government agencies were established which purported to protect deposits in the S&Ls and to subsidize home mortgages for the middle 84 THE CREATURE FROM JEKYLL ISLAND
class. These measures distorted the laws of supply and demand and, from that point forward, the housing industry was moved out of the free market and into the political arena.
Once the pattern of government intervention had been established, there began a long, unbroken series of federal rules and regulations that were the source of windfall profits for managers, appraiser, brokers, developers, and builders. They also weakened the industry by encouraging unsound business practices and high-risk investments.
When these ventures failed, and when the value of real estate began to drop, many S&Ls became insolvent. The federal insurance fund was soon depleted, and the government was confronted with its own promise to bail out these companies but not having any money to do so.
The response of the regulators was to create accounting gimmicks whereby insolvent thrifts could be made to appear solvent and, thus, continue in business. This postponed the inevitable and made matters considerably worse. The failed S&Ls continued to lose billions of dollars each month and added greatly to the ultimate cost of bailout, all of which would eventually have to be paid by the common man out of taxes and inflation. The ultimate cost is estimated at over one trillion dollars.
Congress appears to be unable to act and is strangely silent.
This is understandable. Many representatives and senators are the beneficiaries of generous donations from the S&Ls. But perhaps the main reason is that Congress, itself, is the main culprit in this crime.
In either case, the politicians would like to talk about something else.
In the larger view, the S&L industry is a cartel within a cartel.
The fiasco could never have happened without the cartel called the Federal Reserve System standing by to create the vast amounts of bailout money pledged by Congress.
C h a p t e r Five
NEARER TO THE
HEART'S DESIRE
