It’s been a few days since we first got news of the administration’s $700 billion plan to save the financial industry.  Since then I’ve grown more and more suspicious of this so-called “plan”. 

In large part, the root cause of our current crisis is the mismanagement, failure and political cronyism at government-backed lenders, Freddie Mac and Fannie Mae. 

The worst part about the proposed solution to today’s crisis is that some people are hoping to use your tax dollars to bring about a government-backed solution—to a problem that was essentially caused by decades of government incompetence.

Investors Business Daily has an excellent piece explaining, step-by-step, just how Freddie and Fannie helped get us to where we are today.  According to IBD, Fannie and Freddie:

drove the explosion of the subprime housing market by buying up literally hundreds of billions of dollars in substandard loans — funding loans that ordinarily wouldn’t have been made based on such time-honored notions as putting money down, having sufficient income, and maintaining a payment record indicating creditworthiness.

With all the old rules out the window, Fannie and Freddie gobbled up the market. Using extraordinary leverage, they eventually controlled 90% of the secondary market mortgages. Their total portfolio of loans topped $5.4 trillion — half of all U.S. mortgage lending. They borrowed $1.5 trillion from U.S. capital markets with — wink, wink — an “implicit” government guarantee of the debts.

This created the problem we are having today.

As we noted a week ago, subprime lending surged from around $35 billion in 1994 to nearly $1 trillion last year — for total growth of 2,757% as of last year.

No real market grows that fast for that long without being fixed.

And that’s just what Fannie and Freddie were — fixed. They became a government-run, privately owned home finance monopoly.

Fannie and Freddie became huge contributors to Congress, spending millions to influence votes. As we’ve noted here before, the bulk of the money went to Democrats.

So far I’ve heard a lot of talk about bailing out those who made very risky, and even reckless, decisions.  My question is, what about all the American taxpayers who played by the rules?  Who’s going to bail them out?