While some in the mainstream media are blithely writing the obituary for free market capitalism, something odd is happening: The free market is actually working, not in the way anyone wanted, but it is working; and that is in spite of the best efforts of Bush, Paulson, Bernanke, Pelosi, Reid, Dodd, Frank and all of the other dubious bit players and functionaries that have been spouting off about the need to do something about the crisis. That is the thing about the free market. It is like gravity. It is always on. There is another odd thing happening as well: With the exception of the greedy Wall Street CEOs that everyone involved in the scandal as well as those covering it can agree are evil, no one really wants to identify anyone else responsible for this mess to task. Instead, we hear a great deal about fixing the problem and moving on.

Move on...hmmm...that sounds awfully familiar....

Welcome to the Recession

After the $700 billion Wall Street bailout was rammed through the Congress and all the way to Bush's desk, along with $110 billion to make the bitter pill palatable, Wall Street made a startling discovery, something that the worried, oftentimes squeaky, voices of the Sunday morning talking heads had been denying for months. The markets discovered that we are in a recession. There are those who still say it isn't so, but with the unpleasant correction in the housing market (yes, I said correction, since an economic bubble artificially inflates values) and the insane energy prices we have been forced to pay thanks to the radical environmentalist agenda we've been saddled with for decades, high taxes, governmental interference in the economy, ongoing but necessary wars in Iraq and Afghanistan, and escalating unemployment, how can we not be in a recession? If you wanted to plan a recession that would not only hurt the US, but circle the globe leaving a trail of destruction in its wake, you couldn't have done better than what our government has done over the past decade. Now, the Federal Reserve wants to begin buying up short term debt, also known as Commercial Paper, short term IOUs that companies issue to get short term funding.

Do you remember, oh, a week ago, when people were saying that no one knows where this will all end? Well, it hasn't. The Fed is now making a commitment to buy this Commercial Paper directly from the issuers. The Fed cannot do this legally, of course, so they are going to set up something called a Special Purpose Vehicle, a business entity that will do the purchasing on behalf of the Fed. The Fed is calling the SPV the Commercial Paper Funding Facility. The Fed is doing this, they say, to inject liquidity into the credit markets, which have been frozen thanks to the mortgage housing crisis, and they may have to do it to the tune of approximately $1.6 trillion, which is the size of the Commercial Paper market. $700 billion, $1.6 trillion—pretty soon we're going to be talking about some real money!

Not that any of this financial activism has helped the market, which has been pretty consistently sliding down for the last few days. This really does beg the question: Has the bailout had any real effect on the markets at all? Would things be worse today without the bailout? Would they be better? No one knows. Oil is going down, but that has more to do with the fact that the rest of the world has its own financial problems. The only real effect of the bailout that we can point to with any certainty is that it has opened the door to further bailouts down the road. Whatever further effects may be forthcoming, there is also no question that we are in a recession. There are, however, ways to cope with that. Follow the link to learn how to recession-proof your business.

Moving On—To The Culprits

Like any good whodunit, our financial crisis has a solid time line and a list of distinguished characters. A few of these distinguished characters make up a group that we might refer to as the Usual Suspects. These Usual Suspects are the obvious ones, the suspects that would be easy to finger. Wall Street investment bankers, mortgage lenders, and the troubled children of the New Deal and the Great Society, Freddie Mac and Fannie Mae. Bush, Paulson, Cox and Bernanke are also on the list. These are the suspects that have been trotted out before the cameras to weather the invective of the media since this business began. Yet, there is a whole crowd of people who's culpability goes back years and they have been virtually ignored by the media.

According to Jeff Jacoby at the Boston Globe, the timeline for the whole mess works out like this:

The roots of this crisis go back to the Carter administration. That was when government officials, egged on by left-wing activists, began accusing mortgage lenders of racism and "redlining" because urban blacks were being denied mortgages at a higher rate than suburban whites.

The pressure to make more loans to minorities (read: to borrowers with weak credit histories) became relentless. Congress passed the Community Reinvestment Act, empowering regulators to punish banks that failed to "meet the credit needs" of "low-income, minority, and distressed neighborhoods." Lenders responded by loosening their underwriting standards and making increasingly shoddy loans. The two government-chartered mortgage finance firms, Fannie Mae and Freddie Mac, encouraged this "subprime" lending by authorizing ever more "flexible" criteria by which high-risk borrowers could be qualified for home loans, and then buying up the questionable mortgages that ensued.

All this was justified as a means of increasing homeownership among minorities and the poor. Affirmative-action policies trumped sound business practices. A manual issued by the Federal Reserve Bank of Boston advised mortgage lenders to disregard financial common sense. "Lack of credit history should not be seen as a negative factor," the Fed's guidelines instructed. Lenders were directed to accept welfare payments and unemployment benefits as "valid income sources" to qualify for a mortgage. Failure to comply could mean a lawsuit.

As long as housing prices kept rising, the illusion that all this was good public policy could be sustained. But it didn't take a financial whiz to recognize that a day of reckoning would come. "What does it mean when Boston banks start making many more loans to minorities?" I asked in this space in 1995. "Most likely, that they are knowingly approving risky loans in order to get the feds and the activists off their backs . . . When the coming wave of foreclosures rolls through the inner city, which of today's self-congratulating bankers, politicians, and regulators plans to take the credit?"

Frank doesn't. But his fingerprints are all over this fiasco. Time and time again, Frank insisted that Fannie Mae and Freddie Mac were in good shape. Five years ago, for example, when the Bush administration proposed much tighter regulation of the two companies, Frank was adamant that "these two entities, Fannie Mae and Freddie Mac, are not facing any kind of financial crisis." When the White House warned of "systemic risk for our financial system" unless the mortgage giants were curbed, Frank complained that the administration was more concerned about financial safety than about housing.

This brings us to the Congressman Barney Frank (D-MA), our first suspect. Jacoby lays out a compelling case against him, inspired no doubt by Frank's insistence now that the private sector got us into this mess so the government has to get us out of it.

The second and third suspects are Senator Chris Dodd (D-RI) and Senator Barack Obama (D-IL), the Democrat presidential nominee. Why are they on the list? They received the most in campaign contributions from Freddie and Fannie and carried their water for years in the Senate, even in the face of warnings from Alan Greenspan, then Fed Chairman; John McCain and the Senate Banking Committee; and the Bush Administration, all of which warned of great consequences unless Freddie Mac and Fannie Mae were reined in. In fact, it was Dodd and suspect number four, Senator Chuck Schumer (D-NY), who managed to scuttle a regulatory bill co-sponsored by McCain in 2005 that would have headed this crisis off.

Are we beginning to see a pattern in all of this? Between 2000 and 2008, Fannie Mae and Freddie Mac employees contributed nearly $15 million to the campaigns of Members of Congress on key committees responsible for their oversight, the lion's share of the money going to congressional democrats (in case you are wondering, McCain has received the princely sum of $21,550 from Fannie and Freddie since he was first elected to the Senate in 1986). During that same time period, those same high-dollar recipients (including accomplice Maxine Waters (D-CA) and other high-profile members of the Congressional Black Caucus) did everything in their power to keep the regulators as far away from Fannie and Freddie as they could. They wanted more minorities and poor folks to buy houses, they just didn't care how that was done, or how many companies and people had to be ruined to make that dream come true.

You can add others to the mix—Jimmy Carter, who started the mess with the Community Reinvestment Act; Bill Clinton for giving that law new teeth in the late '90s, ACORN for playing the race card and bullying inner city banks to make bad loans, RINOs (Republican In Name Only) in both the Congress and the White House for failing to really try to put an end to these problems when they were small—but the real culprits mentioned above, those who now solemnly declare the dire need for big government intervention and that they are the ones to fix it need to go before they do any more damage to the economy, to small business and to the people who suffer behind their ideological blindness and utter lack of honesty.

The Bottom Line

If Dick Fuld, the man who steered Lehman Brothers to bankruptcy could be enough of a man to take a punch in the face from an angry Lehman employee and then go on to take public responsibility for his part in all of this, then so can Frank, Dodd, Schumer, Obama, Waters, Pelosi, Reid and the rest. They could, but they won't. With the media the way it is, they don't have to unless the people demand it and the candidates running against them demand it. Why should they? AIG, they got bailed out to the tune of $85 billion by the taxpayers earlier this year, spent $400,000 to send its executives for a week long retreat at the St. Regis Resort in Monarch Beach, California a week after being bought up by the government. The story was broken by ABC News and detailed that the company spent $200,000 for rooms, $150,000 for meals and $23,000 in spa charges. Talk about business as usual! Their saviors in government, who saddled tax payers like you and me with this mess, never batted an eye.

These are people who have forgotten their way and ways laid down by our nation's Founding Fathers. They need to be replaced, and soon, by people who have not lost their way, people who would not tolerate what AIG or any of the other Wall Street giants did or continue to try to do. In a recent column for Human Events, Chuck Norris, martial artist, actor, activist and patriot, wrote of what the Founders thought of how government's fiscal management should be conducted. These suggestions work for both government, for businesses and for our personal lives. They take discipline and they take honor to execute and if we are to recover from this debacle they should be before the eyes and on the heart of anyone who seeks high office in this land. Here is what Chuck had to say:

• Restrict spending within constitutional limits. The 10th Amendment restricts the size of government, and that always should bear out in spending and the federal budget. That means cutting hundreds of billions the Fed shouldn't be spending. That means following congressional protocol. That means understanding that income and export taxes were unconstitutional to our Founders.
  
  

• Don't bail out debt with more debt. George Washington wrote in 1799 to James Welch, "To contract new debts is not the way to pay for old ones." Thomas Jefferson similarly admonished Samuel Kercheval in 1816, "To preserve (the) independence (of the people), we must not let our rulers load us with perpetual debt." (Some are quick to point out that Thomas Jefferson financed the Louisiana Purchase with government loans, but they overlook the fact that Jefferson's administration lowered the federal deficit by nearly one-third during his eight years in office.)
  
  

• Have a pay-as-you-go government. If we don't have the money, we shouldn't spend it. Period. No more debt. No more bailouts. No more spending. As Thomas Jefferson wrote to Fulwar Skipwith in 1787, "The maxim of buying nothing but what we (have) money in our pockets to pay for … (is) a maxim which, of all others, lays the broadest foundation for happiness."
  

• Minimize taxes to citizens. Our earliest government's primary tool to raise revenue was from tariffs, not through the countless taxes placed upon citizens today. That is one reason I say to abolish the unconstitutional Internal Revenue Service and implement a "fair tax," which doesn't penalize productivity and will bring American manufacturing back within our borders. As James Madison said in 1783: "Taxes on consumption are always least burdensome because they are least felt and are borne, too, by those who are both willing and able to pay them; that of all taxes on consumption, those on foreign commerce are most compatible with the genius and policy of free states."
  
  

• Get over the greed. We're in this financial mess because of greed. Why is government spending out of control? Greed. Why do we, as individuals and as a nation, keep falling deeper into a pit of debt? Greed. Alexander Hamilton, the first secretary of the Treasury, believed that a government that could use greed to motivate its people would become powerful and wealthy. Unfortunately, we've taken it to the extreme. We've become a nation that confuses our needs and greeds, and we've got to get back to the basics if we're ever to understand and overcome the heart of this financial crisis.

It is time to take the gloves off, folks, to give credit where credit is due and to get some real change working in Washington.