We here at GR Pundit have made it a general policy to comment and report on local issues only. However, the extent and scope of the current market crisis requires that we break that policy.

What is the origin of the current economic crisis? Is it capitalism run amok? No. It is government run amok. As with so many economic failures, this crisis has its roots in two government programs – Fannie Mae and Freddie Mac. We will say this categorically: this economic crisis would not be happening if those two entities had not been created by (and implicitly guaranteed by) the federal government. This is not a failure of capitalism, it is a failure of government. This is what happens when the government interferes with the market.

Read a New York Times article from 1999 to understand exactly what started this mess.

http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260&sec=&spon=&pagewanted=all

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980′s.

”From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”

…

Fannie Mae, the nation’s biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.

A few more resources on this gigantic destructive government failure:

• Are Fannie and Freddie Too Big to Fail?
• Understanding the Crisis
• What’s Behind the Financial Market Crisis?

Just remember – it is government (the Federal Reserve) that created the Great Depression, it is government (FDR’s “New Deal”) that extended the Depression to last over 15 years, it is government that created this credit crisis. The government needs to get out of the way and allow the market to correct. Fannie Mae and Freedie Mac need to be liquidated and terminated. It is only when true market mechanisms are allowed to work will we come out of this crisis. “A bailout in every pot” will only prolong the pain.