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After 9/11, Bush Let the Al Issa Family Into America. Now 10 Americans are Dead.

Two years ago, Ahmad Al Issa shared a post entitled, “Why refugees and immigrants are good for America.” On Monday, the Syrian Muslim immigrant shot up a supermarket, killing ten Americans.

Biden declared that he was “still waiting for more information regarding the shooter, his motive, the weapons he used. The guns, the magazines, the weapons, the modifications that have apparently taken place to those weapons that are involved here.”

Why do the modifications to the Syrian immigrant’s weapons matter more than his motive?

Obama joined in, demanding that it is, “long past time for those with the power to fight this epidemic of gun violence to do so.”

Guns don’t kill people. Muslim terrorists do.

Ahmad Al Issa spent much of his time in America accusing his classmates and everyone around him of being “Islamophobes.” He repeatedly got into furious confrontations with the Americans whom he claimed were disrespecting his Islamic religion.

The media is spinning this as a mental illness, but if hating non-Muslims is a mental illness, then it’s a common one in his home country.

While Ahmad Al Issa came to America at a young age with his family, the Al Issa clan originated from Raqqa. The name of the Syrian city may not mean much to most Americans, but it was the former capital of the Caliphate of the Islamic State.

Or ISIS.

And that was after it had been previously taken over by the Al Nusra Front, linked to Al Qaeda, and by Ahrar al-Sham, which had coordinated with ISIS. Multiple Jihadist units and groups used the name “Raqqa” to symbolize their determination to stake a claim to the Syrian city and region.

Raqqa has a sizable Sunni Islamist base even beyond ISIS.

While Al Issa grew up in America, his family would have likely maintained an extensive network of family connections with Raqqa. Family members insist that Ahmad Al Issa was not a radical, but he was clearly a committed Muslim and his Facebook page, since taken down, is filled with Islamic content, and with attacks on President Trump and on America over “Islamophobia.”

Colorado took in a sizable number of migrants with multiple charities, religious and secular, springing up to help the alleged refugees. And once again Americans are reeling from a terror attack because Democrats and some Republicans refuse to secure our immigration system.

There were plenty of warnings that Ahmad Al Issa’s hatred for America and obsession with Islamophobia could turn violent. In 2017, he assaulted a fellow student claiming that he had made fun of his identity. The Syrian immigrant got off with a misdemeanor, probation, and community service. Just imagine if the system had done its job and locked him up instead.

The angry outbursts and claims of Islamophobia are now being spun as mental illness.

But the most obvious explanation for why a Syrian Muslim immigrant whose family comes from the capital of ISIS would shoot up an American supermarket isn’t mental illness.

Nor is the solution gun control.

Democrats and the media had attacked President Trump for suspending the migration of Syrians into America. When Biden overturned the suspension, the media cheered.

“Beyond contravening our values, these Executive Orders and Proclamations have undermined our national security,” Biden had falsely declared.

The bodies of ten dead Americans show what national security with terror migration looks like.

In 2016, Judge Posner had prevented Governor Pence from blocking Syrian refugees. Posner bizarrely claimed that Pence’s attempt to protect Americans from Islamic terrorists was the equivalent of forbidding “black people to settle in Indiana.”

The Trump administration’s moves would not have stopped the Al-Issa clan from coming here in 2002, but it would have prevented future terrorists from taking more American lives.

Biden and the Democrats responded to the King Sooper shootings by preaching “common sense gun control.” But their gun control has yet to work in Chicago or New York. Meanwhile what Americans need isn’t fewer guns, but fewer immigrant and refugee terrorists.

The tragedy of the Al Issa family arriving here in 2002, after September 11, is a case study in the obstinate refusal of our political elites to reckon with even the worst terror attacks.

President George W. Bush had postponed the Presidential Determination for the number of refugees imported into America because of the September 11 attacks. But he nevertheless went ahead and issued it in November 2001 which allocated 70,000 refugee slots.

And, insanely, boosted the Near East/South Asia category from 10,000 to 15,000 which had been set at 4,000 under Clinton. In 2001, some 3,000 had already been referred to through Syria, Jordan and Turkey. These numbers may sound technical, but they show the terrible policy decisions that led directly to the brutal murder of ten Americans in an ordinary supermarket.

The American victims of Ahmad Al Issa’s rampage included grandparents and employees, an actress, and a police officer who charged the Muslim shooter and paid for it with his life.

Colorado Democrats clamor that this shooting didn’t have to happen. They’re right, but not because of gun control. It didn’t have to happen if we just reformed our immigration system.

Ahmad Al-Issa grew up in America and hated every minute of it. He hated his host country, his classmates and his peers. Over the years, his hatred grew until it consumed him. Then it consumed in his victims in a murderous rampage aimed at non-Muslim Coloradans.

In 2019, Al Issa had fashionably tweeted “#istandwithrefugees.” It’s the sort of thing that many in Boulder, in Colorado, and across America have irresponsibly tweeted.

And it’s a hashtag that kills.

Bush’s decision to let in the Al Issa family after September 11 killed ten Americans. It was a tragic decision that he might not have seen buried in the numbers. But it happened anyway.

There’s really no excuse for it today after two decades of continuous Islamic terrorism.

Every day that we keep our border open, that we welcome in more migrants from terror states, we are pointing a loaded gun at our own heads and pulling the trigger. Most of the time the chamber is empty, but every now and then, the immigration gun fires and people die.

Biden and the Democrats would like to talk about Al Issa’s weapon modifications after opening the border to gang members and terrorists. They want to push restrictions on Americans owning guns, instead of restrictions on their own resettlement agencies bringing in terrorists.

The problem is not that a Syrian immigrant from the capital of ISIS had a gun. The problem was that a Syrian immigrant from the capital of ISIS was in Colorado and in America.

The authorities and the media will go on lying to Americans. They will blame mental illness, as they do with every Muslim terrorist, and depict Al Issa as the victim of Islamophobic bigots. The Democrats will turn the killer into the victim and his victims into the perpetrators as they have done so many times. They will tell us that Islam is a religion of peace, and that Al Issa’s religion and his family origins in the capital of the ISIS Caliphate should be ignored.

And even in the midst of so many burning issues, we must not give up the fight on this one.

There are hard, cold truths about Islamic terrorism that decades after September 11 we seem to be no closer to understanding than Bush was in November 2001.

We can stand with the terror refugees killing us. Or we can stand with their American victims.

COLUMN BY

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EDITORS NOTE:  This Jihad Watch column is republished with permission. ©All rights reserved.

Israel has tape of Iranian nuclear scientist saying mullahs ‘want five warheads’

Yet His Fraudulency Joe Biden plans to enable Iran’s nuclear program anew by returning to the Iranian nuclear deal. Find out why that would be a catastrophic move in The Complete Infidel’s Guide to Iran.

“‘Israel has tape of slain Iran nuke chief talking about building five warheads,’” Times of Israel, December 4, 2020:

Israel intelligence managed to recruit an Iranian official close to the recently assassinated Mohsen Fakhrizadeh and recorded the nuclear scientist speaking about his efforts to produce “five warheads” on behalf of the Islamic Republic, according to a Friday report in the Yedioth Ahronoth daily.

This top-secret recording was played in 2008 by former prime minister Ehud Olmert for then-president George W. Bush during a visit by Bush to Israel and was a key element in convincing the Americans to step up efforts to combat Iran’s nuclear program, the report said….

“I’m going to play you something, but I ask that you not talk about it with anyone, not even with the director of the CIA,” the report quoted Olmert as telling Bush from within the closed-door meeting. Bush reportedly agreed to the request.

Olmert pulled out a recording device, hit play and a man could be heard speaking in Persian.

“The man speaking here is Mohsen Fakhrizadeh,” Olmert reportedly explained. “Fakhrizadeh is the head of the “AMAD” program, Iran’s secret military nuclear project. The one it denies exists at all,” Olmert told Bush according to the report.

The prime minister then revealed that Israeli intelligence services had managed to recruit an Iranian agent close to Fakhrizadeh who had been feeding Jerusalem information on the nuclear scientist for years.

Olmert provided Bush with an English-language transcript of what Fakhrizadeh had said in Persian.

According to the report, Fakhrizadeh could be heard giving details about the development of Iranian nuclear weapons. However, the Yedioth report only quotes selected phrases, without the word nuclear. The scientist complains that the government is not providing him with sufficient funds to carry out his work. On the one hand, Fakhrizadeh says, in an apparent reference to his superiors, “they want five warheads,” but on the other, “they aren’t letting me work.”

Fakhrizadeh then goes on to criticize colleagues in the defense ministry and the Islamic Revolutionary Guard Corps, according to the report.

Bush read the recording’s translation and reacted with silence. Yedioth claimed the recording served as a “smoking atomic gun” for Olmert….

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EDITTORS NOTE: This Jihad Watch column is republished with permission. ©All rights reserved.

Clinton, Bush Implicated in Covering Up Saudi Terror in U.S.

The recently-declassified pages of the 9/11 report implicated both administrations, saying they ignored the Saudi network in the U.S.

The 28 pages of the recently-declassified report on the September 11, 2001 terrorist attack not only implicated the Saudi government and its network on U.S. soil, it implicates the Clinton and Bush Administrations in covering up that network and stopping the FBI from protecting America from it.

Page 11 states:

“Prior to September 11th, the FBI apparently did not focus investigative [censored]…Saudi nationals in the United States due to Saudi Arabia’s status as an American ‘ally.’…A representative of the FBI’s [censored] testified in closed hearings that, prior to September 11th, the FBI received ‘no reporting from any member of the Intelligence Community’ that there is a [censored] presence in the United States.”

The censoring of the documents leaves us to wonder what specific terror-related presence the documents are referring to, but it is very clear that it is a network linked to the Saudi government and insufficient investigative resources were allotted for it because of those linkages.

Repeat: A terrorist network threatening Americans was “apparently” not properly addressed because it wasn’t worth offending the government of Saudi Arabia, even though the documents say the Saudi government was, as one veteran FBI agent was quoted as saying, “useless and obstructionist” on counter-terrorism.

The scandalous revelations could impact the presidential campaign because the Clinton Administration had eight years to address this Saudi network in America.

The Bush Administration was in office for only 9 months, but cannot be absolved of blame. The files do not indicate that any change in direction was ordered before the attacks and it chose to classify the pages exposing the Saudis in the 2002 report.

The Bush Administration also opted not to blacklist two terror-tied organizations with strong Saudi ties: Muslim World League and International Islamic Relief Organization. The former also has strong links to Huma Abedin and her family, one of the closest advisers to Hillary Clinton.

Perhaps that decision has something to do with the Saudi ambassador to the U.S. at the time, Prince Bandar bin Sultan, who was so close to the Bush family that he was nicknamed “Bandar Bush.”

It turns out “Bandar Bush” and his wife were up to their ears in terrorist activity. This includes the FBI finding copies of checks from February 1999 to May 2002 showing payments of $74,000 from his wife to the wife of one of the Saudi intelligence officers linked to the 9/11 hijackers for “nursing services.”

As you probably assumed, the FBI found no evidence that these services were actually rendered.

An unlisted phone number to the Colorado-based company that handled the affairs of “Bandar Bush” was found in the possession of Abu Zubaydah, one of the most senior Al-Qaeda leaders at the time. The documents contain much more than that to show that this “moderate” was intricately involved in the Saudi-backed jihadist network.

Documents obtained by the Clarion Project show that President Bush was actually scheduled to meet with representatives from the Saudi-linked Muslim Brotherhood network on the very day of the attacks, September 11, 2001. This was the fruition of the Republican Party and Bush presidential campaign’s embrace of Islamists, many of whom belonged to the Saudi-backed Brotherhood network.

The relationship continued after the 9/11 attacks, but frayed as some of those same Islamists faced investigations and prosecutions.

The Saudi regime is known as one of the most prolific influence-peddlers. Former CIA case officer Robert Baer, wrote in his bookSleeping with the Devil: How Washington Sold its Soul for Saudi Crude:

“Saudi money also seeped into the bureaucracy. Any Washington bureaucrat with a room-temperature IQ knows that if he stays on the right side of the kingdom, one way or another, he’ll be able to finagle his way to feed at the Saudi trough. A consulting contract with Aramco, a chair at American University, a job with Lockheed—it doesn’t matter.

There’s hardly a living former assistant secretary of state for the Near East, CIA director, White House staffer, or member of Congress who hasn’t ended up on the Saudi payroll in one way or another, or so it sometimes seems. With this kind of money waiting out there, of course Washington’s bureaucrats don’t have the backbone to take on Saudi Arabia.”

A search of the Foreign Agents Registration Act website shows 14 active foreign agents of Saudi Arabia, including the Podesta Group. It is led by a major Democratic Party financier who is the brother of Hillary Clinton’s presidential campaign manager. The group is paid $140,00 per month by the Saudis.

In his Farewell Address, President George Washington repeatedly urged Americans to be on guard against this type of activity, saying “foreign influence is one of the most baneful foes of republican government.”

The “spirit of party,” Washington warned, “opens the door to foreign influence and corruption, which finds a facilitated access to the government itself through the channels of party passions. Thus the policy and the will of one country are subjected to the policy and will of another.”

Every American should be reminded of his words in light of the newly-released documents.

ABOUT RYAN MAURO

Ryan Mauro is ClarionProject.org’s national security analyst, a fellow with Clarion Project and an adjunct professor of homeland security. Mauro is frequently interviewed on top-tier television and radio. Read more, contact or arrange a speaking engagement.

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Retired DHS Intelligence Officer Blows Whistle on Federal Government’s role in Islamic terror threat

WASHINGTON, D.C. — One day after a prominent U.S. Muslim leader reacted to the November 2015 Paris attacks with a declaration that the Islamic State, also known as ISIS, has nothing to do with Islam, President Obama made the same assertion.

Who exactly is the enemy we face, not only in the Middle East but also within our borders? Is it “murderers without a coherent creed” or “nihilistic killers who want to tear things down,” as some described ISIS after 130 people were brutally slain and another 368 injured in a coordinated attack on Western soil that authorities say was organized with help from inside France’s Muslim communities.

After the Paris attacks, Obama, himself, described ISIS as “simply a network of killers who are brutalizing local populations.”

But how much do words and definitions really matter? According to the legendary military strategist Sun Tzu, if “you do not know your enemies but do know yourself, you will win one (battle) and lose one; if you do not know your enemies nor yourself, you will be imperiled in every single battle.”

When the Department of Homeland Security was founded in 2003, its stated purpose was “preventing terrorist attacks within the United States and reducing America’s vulnerability to terrorism.” The Bush administration’s definition of the enemy as a tactic, terrorism, rather than a specific movement, proved consequential amid a culture of political correctness. By the time President Obama took office, Muslim Brotherhood-linked leaders in the United States were forcing changes to national security policy and even being invited into the highest chambers of influence. A policy known as Countering Violent Extremism emerged, downplaying the threat of supremacist Islam as unrelated to the religion and just one among many violent ideological movements.

When recently retired DHS front-line officer and intelligence expert Philip Haney bravely tried to say something about the people and organizations that threatened the nation, his intelligence information was eliminated, and he was investigated by the very agency assigned to protect the country. The national campaign by the DHS to raise public awareness of terrorism and terrorism-related crime known as If You See Something, Say Something effectively has become If You See Something, Say Nothing.

To be released by WND Books on May 24, 2016, in See Something, Say Nothing: A Homeland Security Officer Exposes the Government’s Submission to Jihad, Haney – a charter member of DHS with previous experience in the Middle East – and co-author Art Moore expose just how deeply the submission, denial and deception run. Haney’s insider, eyewitness account, supported by internal memos and documents, exposes a federal government capitulating to an enemy within and punishing those who reject its narrative.

Haney discloses:

  • How the Bush administration stripped him and other front-line officers of their ability to define the threat;
  • How much the Obama administration knew in advance of the Boston Marathon bombing and how it launched an ongoing cover-up on behalf of a major ally;
  • The administration’s stealth policy to protect Islamic leaders with supremacist beliefs and violent-jihadist ties, allowing them to freely travel between the U.S. and the Middle East;
  • The scope of access to the White House and the classified information the Obama administration gave to members of Muslim Brotherhood front groups;
  • The damning intelligence on Muslim Brotherhood-linked leaders invited to sit at the table and help form national-security policy;
  • The “words matter” memo imposing the demands of radical U.S. Muslim leaders on the DHS, including stripping intelligence and official communications of any mention of Islam in association with terrorism;
  • The purging of training material that casts Islam in a negative light;
  • The erasing and altering of vital intelligence on terrorists and terror threats;
  • The fear-based tactics imposed by the Muslim Brotherhood front groups in the U.S. and their accomplices that paralyze officials, members of Congress and any Department of Homeland Security employee who dares to expose or resist their agenda; and

Much more …

In this well-documented, first-person account of his unique service with DHS, Haney shows why it’s imperative that Americans demand that when they see something and say something, the servants under their charge do something to prevent a cunning, relentless enemy from carrying out its stated aim to “destroy Western Civilization from within.”

ABOUT PHILIP B. HANEY

Philip Haney studied Arabic culture and language while working as a scientist in the Middle East before he was hired as a founding member of the Department of Homeland Security in 2003. After becoming an armed Customs and Border Protection officer, he served several tours of duty at the National Targeting Center near Washington, DC, where he quickly was promoted to its Advanced Targeting Team, an unprecedented accomplishment for an agent on temporary duty assignment. Officer Haney won numerous awards and commendations from his superiors for meticulously compiling information and producing actionable reports that led to the identification of hundreds of terrorists. He has specialized in Islamic theology and the strategy and tactics of the global Islamic movement. He retired honorably in July 2015.

ABOUT ART MOORE

Art Moore is an editor for online news giant WND. He entered the media world as a public relations assistant for the Seattle Mariners and a sports correspondent for Associated Press Radio. Moore served for ten years in Eastern Europe with a Christian organization and earned a master’s degree in communications from Wheaton College. Before joining WND shortly after 9/11, he was an editor for the news service Worldwide Newsroom and senior news writer for Christianity Today magazine.

See Something, Say Nothing will be in bookstores nationwide on May 24, 2016

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Saudi involvement in 9/11 ‘deliberately covered up at highest levels’ of U.S. government

What has the U.S. gained by doing the Saudis’ bidding all these years? Has global jihad terrorism abated? Have the Saudis stopped spreading their violent and virulent Wahhabi ideology around the world? Have the Saudis stopped the rise of the Islamic State? In fact, the whole “alliance” has been a disaster that has severely weakened the United States.

“How US covered up Saudi role in 9/11,” by Paul Sperry, New York Post, April 17, 2016:

In its report on the still-censored “28 pages” implicating the Saudi government in 9/11, “60 Minutes” last weekend said the Saudi role in the attacks has been “soft-pedaled” to protect America’s delicate alliance with the oil-rich kingdom.

That’s quite an understatement.

Actually, the kingdom’s involvement was deliberately covered up at the highest levels of our government. And the coverup goes beyond locking up 28 pages of the Saudi report in a vault in the US Capitol basement. Investigations were throttled. Co-conspirators were let off the hook.

Case agents I’ve interviewed at the Joint Terrorism Task Forces in Washington and San Diego, the forward operating base for some of the Saudi hijackers, as well as detectives at the Fairfax County (Va.) Police Department who also investigated several 9/11 leads, say virtually every road led back to the Saudi Embassy in Washington, as well as the Saudi Consulate in Los Angeles.

Yet time and time again, they were called off from pursuing leads. A common excuse was “diplomatic immunity.”

Those sources say the pages missing from the 9/11 congressional inquiry report — which comprise the entire final chapter dealing with “foreign support for the September 11 hijackers” — details “incontrovertible evidence” gathered from both CIA and FBI case files of official Saudi assistance for at least two of the Saudi hijackers who settled in San Diego.

Some information has leaked from the redacted section, including a flurry of pre-9/11 phone calls between one of the hijackers’ Saudi handlers in San Diego and the Saudi Embassy, and the transfer of some $130,000 from then-Saudi Ambassador Prince Bandar’s family checking account to yet another of the hijackers’ Saudi handlers in San Diego.

An investigator who worked with the JTTF in Washington complained that instead of investigating Bandar, the US government protected him — literally. He said the State Department assigned a security detail to help guard Bandar not only at the embassy, but also at his McLean, Va., mansion.

The source added that the task force wanted to jail a number of embassy employees, “but the embassy complained to the US attorney” and their diplomatic visas were revoked as a compromise.

Former FBI agent John Guandolo, who worked 9/11 and related al Qaeda cases out of the bureau’s Washington field office, says Bandar should have been a key suspect in the 9/11 probe.

“The Saudi ambassador funded two of the 9/11 hijackers through a third party,” Guandolo said. “He should be treated as a terrorist suspect, as should other members of the Saudi elite class who the US government knows are currently funding the global jihad.”

But Bandar held sway over the FBI.

After he met on Sept. 13, 2001, with President Bush in the White House, where the two old family friends shared cigars on the Truman Balcony, the FBI evacuated dozens of Saudi officials from multiple cities, including at least one Osama bin Laden family member on the terror watch list. Instead of interrogating the Saudis, FBI agents acted as security escorts for them, even though it was known at the time that 15 of the 19 hijackers were Saudi citizens.

“The FBI was thwarted from interviewing the Saudis we wanted to interview by the White House,” said former FBI agent Mark Rossini, who was involved in the investigation of al Qaeda and the hijackers. The White House “let them off the hook.”

What’s more, Rossini said the bureau was told no subpoenas could be served to produce evidence tying departing Saudi suspects to 9/11. The FBI, in turn, iced local investigations that led back to the Saudis….

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The House That Uncle Sam Built by Peter J. Boettke & Steven Horwitz

The Great Recession (or the Great Hangover) that began in 2008 did not have to happen. Its causes and consequences are not mysterious. Indeed, this particular and very painful episode affirms what the best nonpartisan economists have tried to tell our politicians and policy-makers for decades, namely, that the more they try to inflate and direct the economy, the more damage the rest of us will suffer sooner or later. Hindsight is always 20-20, but in this instance, good old-fashioned common sense would have provided all the foresight needed to avoid the mess we’re in.

In this essay, originally published December 2009, we trace the path of the recession from its origins in the housing market bubble to the policies offered to cure the aftermath.

Download the PDF.

Listen to the audio file (MP3).


Introduction

The theme of “The House that Uncle Sam Built: The Untold Story of the Great Recession of 2008” is that government policy, not a failure of free markets, caused the economic trauma we have been experiencing. We do not live in a free market. We live in a mixed economy. The mixture varies by industry. Technology is primarily free. Financial Services is primarily government. It is not surprising that the most government regulated and controlled segment of the economy, financial services, experienced the biggest problems. These problems were created by actions by the Federal Reserve combined with government housing policy (especially the government- sponsored enterprises – Freddie Mac and Fannie Mae). Misguided government interference in the market is the real culprit in laying the foundation for the Great Recession.

This paper provides a “common sense” and understandable outline of fundamental causes and cures. The analysis is based on long proven economic laws. Despite the wishes and hopes of politicians, economic laws are just as immutable as the laws of physics. If you jump off a ten story building, hitting the ground will not be pleasant. If the Federal Reserve holds interest rates below the natural market rate by rapidly expanding the money supply (“printing” money) as Alan Greenspan did, individuals and businesses will make bad investment decisions and there will be negative consequences to our long term economic well-being. There are no free lunches.

When a doctor misdiagnoses a disease, his treatment will likely make the patient sicker. If we misdiagnose the causes of the Great Recession, our treatment will reduce our long term standard of living. While the U.S. economic system is highly resilient, and we will likely have some form of economic recovery, almost every significant government policy action taken in response to the Great Recession will reduce the quality of life in the long term. Understanding that failed government policies, not market failure, caused our economic challenges is critical to defining the appropriate cures. Since government created the problem, i.e. caused the disaster, it is irrational to believe that more government is the cure. We owe it to ourselves and to our children and grandchildren to take these issues very seriously.

John Allison, Chairman, BB&T

The House That Uncle Sam Built

The man who parties like there is no tomorrow puts his body through an “up” and a “down” course that looks a lot like the business cycle. At the party, the man freely imbibes. He has a great time before stumbling home at 2:00 a.m., where he crashes on the sofa. A few hours later, he awakens in the grip of the dreaded hang- over. He then has a choice to make: get a short-term lift from another drink or sober up. If he chooses the latter and endures a few hours of discomfort, he can recover. In any event, no one would say the hangover is when the harm is done; the harm was done the night before and the hangover is the evidence.

The Great Recession (or the Great Hangover) that began in 2008 did not have to happen. Its causes and consequences are not mysterious. Indeed, this particular and very painful episode affirms what the best nonpartisan economists have tried to tell our politicians and policy-makers for decades, namely, that the more they try to inflate and direct the economy, the more damage the rest of us will suffer sooner or later. Hindsight is always 20-20, but in this instance, good old-fashioned common sense would have provided all the foresight needed to avoid the mess we’re in.

In this essay, we trace the path of the recession from its origins in the housing market bubble to the policies offered to cure the aftermath.

There is no better way to understand a crisis that began in the housing sector than to begin by thinking about a house.

A house must be built on a firm, sustainable foundation. If it’s slapped together with good intentions but lousy materials and workmanship, it will collapse prematurely. If too much lumber and too many bricks are piled on top of a weak support structure, or if housing material is misallocated throughout the house, then an apparently solid structure can crumble like sand once its weaknesses are exposed. Americans built and bought a lot of houses in the past decade not, it turns out, for sound reasons or with solid financing. Why this occurred must be part of any good explanation of the Great Recession.

But isn’t home ownership a great thing, the very essence of the vaunted “American Dream”? In the wealthiest country in the world, shouldn’t everyone be able to own their own home? What could be wrong with any policy that aims to make housing more affordable? Well, we may wish it were not so, but good intentions cannot insulate us from the consequences of bad policies.

Politicians became so enthralled with home ownership and affordable housing – and the points they could score by claiming to be their champions – that they pushed and shoved the economy down an artificial path that invited an inevitable (and painful) correction. Congress created massive, government-sponsored enterprises and then encouraged them to degrade lending standards. Congress bent tax law to favor real estate over other investments. Through its reckless easy money policies, another creation of Congress, the Federal Reserve, flooded the economy with liquidity and drove interest rates down. Each of these policies encouraged too many of the economy’s resources to be drawn into the housing sector. For a substantial part of this decade, our policy-makers in Washington were laying a very poor foundation for economic growth.

Was Free Enterprise the Villain?

Call it free enterprise, capitalism or laissez faire – blaming supposedly unfettered markets for every economic shock has been the monotonous refrain of conventional wisdom for a hundred years. Among those making such claims are politicians who posture as our rescuers, bureaucrats who are needed to implement the rescue plans and special interests who get rescued. Then there are our fellow academics – the ones who add a veneer of respectability – trumpeting the “stimulus” the rest of us get from being rescued.

Rarely does it occur to these folks that government intervention might be the cause of the problem. Yet, we have the Federal Reserve System’s track record, thousands of pages of financial regulations, and thousands more pages of government housing policy that demonstrate the utter absence of “laissez faire” in areas of the economy central to the current recession.

Understanding recessions requires knowing why lots of people make the same kinds of mistakes at the same time. In the last few years, those mistakes were centered in the housing market, as many people overestimated the value of their houses or imagined that their value would continue to rise. Why did everyone believe that at the same time? Did some mysterious hysteria descend upon us out of nowhere? Did people suddenly become irrational? The truth is this: People were reacting to signals produced in the economy. Those signals were erroneous. But it was the signals and not the people themselves that were irrational.

Imagine we see an enormous rise in the number of traffic accidents in a major city. Cars keep colliding at intersections as drivers all seem to make the same sorts of mistakes at once. Is the most likely explanation that drivers have irrationally stopped paying attention to the road, or would we suspect that something might be wrong with the traffic lights? Even with completely rational drivers, malfunctioning traffic signals will lead to lots of accidents and appear to be massive irrationality.

Market prices are much like traffic signals. Interest rates are a key traffic signal. They reconcile some people’s desire to save – delay consumption until a future date – with others’ desire to invest in ideas, materials or equipment that will make them and their businesses more productive. In a market economy, interest rates change as tastes and conditions change. For instance, if people become more interested in future consumption relative to current consumption, they will increase the amount they save. This, in turn, will lower interest rates, allowing other people to borrow more money to invest in their businesses. Greater investment means more sophisticated production processes, which means more goods will be available in the future. In a normally functioning market economy, the process ensures that savings equal investment, and both are consistent with other conditions and with the public’s underlying preferences.

As was made all too obvious in 2008, ours is not a normally functioning market economy. Government has inserted itself into almost every transaction, manipulating and distorting price signals along the way. Few interventions are as momentous as those associated with monetary policy implemented by the Federal Reserve. Money’s essence is that it is a generally accepted medium of exchange, which means that it is half of every act of buying and selling in the economy. Like blood circulating in the body, it touches everything. When the Fed tinkers with the money supply, it affects not just one or two specific markets, like housing policy does, but every single market in the entire economy. The Fed’s powers give it an enormous scope for creating economic chaos.

When central banks like the Federal Reserve inflate, they provide banks with more money to lend, even though the public has not provided any more savings. Banks respond by lowering interest rates to draw in new borrowers. The borrowers see the lower interest rate and believe that it signals that consumers are more interested in delayed consumption relative to immediate consumption. Borrowers then begin to invest in those longer-term projects, which are now relatively more desirable given the lower interest rate. The problem, however, is that the demand for those longer-term projects is not really there. The public is not more interested in future consumption, even though the interest rate signals suggest otherwise. Like our malfunctioning traffic signals, an inflation-distorted interest rate is going to cause lots of “accidents.” Those accidents are the mistaken investments in longer-term production processes.

“I want to roll the dice a little bit more in this situation toward subsidized housing.” – Barney Frank, 2003

Eventually those producers engaged in the longer processes find the cost of acquiring their raw materials to be too high, particularly as it becomes clear that the public’s willingness to defer consumption until the future is not what the interest rate suggested would be forthcoming. These longer-term processes are then abandoned, resulting in falling asset prices (both capital goods and financial assets, such as the stock prices of the relevant companies) and unemployed labor in sectors associated with the capital goods industries.

So begins the bust phase of a monetary policy-induced cycle; as stock prices fall, asset prices “deflate,” overall economic activity slows and unemployment rises. The bust is the economy going through a refitting and reshuffling of capital and labor as it eliminates mistakes made during the boom. The important points here are that the artificial boom is when the mistakes were made, and it is during the bust that those mistakes are corrected.

From 2001 to about 2006, the Federal Reserve pursued the most expansionary monetary policy since at least the 1970s, pushing interest rates far below their natural rate. In January of 2001 the federal funds rate, the major interest rate that the Fed targets, stood at 6.5%. Just 23 months later, after 12 successive cuts, the rate stood at a mere 1.25% – more than 80% below its previous level. It stayed below 2% for two years then the Fed finally began raising rates in June of 2004. The rate was so low during this period that the real Federal Funds rate – the nominal rate minus the rate of inflation – was negative for two and a half years. This meant that, in effect, banks were being paid to borrow money! Rapidly climbing after mid-2004, the rate was back up to the 5% mark by May of 2006, just about the time that housing prices started their collapse. In order to maintain that low Fed Funds rate for that five year period, the Fed had to increase the money supply significantly. One common measure of the money supply grew by 32.5%. A lot of economically irrational investments were made during this time, but it was not because of “irrational exuberance brought on by a laissez-faire economy,” as some suggested. It is unlikely that lots of very similar bad investments are the resut of mass irrationality, just as large traffic accidents are more likely the result of malfunctioning traffic signals than lots of people forgetting how to drive overnight. They resulted from malfunctioning market price signals due to the Fed’s manipulation of money and credit. Poor monetary policy by an agency of government is hardly “laissez faire”.

What About Housing?

With such an expansionary monetary policy, the housing market was sent contradictory and incorrect signals. On one hand, housing and housing-related industries were given a giant green light to expand. It is as if the Fed supplied them with an abundance of lumber, and encouraged them to build their economic house as big as they pleased.

This would have made sense if the increased supply of lumber (capital) had been supported by the public’s desire to increase future consumption relative to immediate consumption – in other words, if the public had truly wanted to save for the bigger house. But the public did not. Interest rates were not low because the public was in the mood to save; they were low because the Fed had made them so by fiat. Worse, Fed policy gave the would-be suppliers of capital – those who might have been tempted to save – a giant red light. With rates so low, they had no incentive to put their money in the bank for others to borrow.

So the economic house was slapped together with what appeared to be an unlimited supply of lumber. It was built higher and higher, drawing resources from the rest of the economy. But it had no foundation. Because the capital did not reflect underlying consumer preferences, there was no support for such a large house. The weaknesses in the foundation were eventually exposed and the 70-story skyscraper, built on a foundation made for a single-family home, began to teeter. It eventually fell in the autumn of 2008.

But why did the Fed’s credit all flow into housing? It is true that easy credit financed a consumer-borrowing binge, a mergers-and-acquisitions binge and an auto binge. But the bulk of the credit went to housing. Why? The answer lies in government’s efforts to increase the affordability of housing.

Government intervention in the housing market dates back to at least the Great Depression. The more recent government initiatives relevant to the current recession began in the Clinton administration. Since then, the federal government has adopted a variety of policies intended to make housing more affordable for lower and middle income groups and various minorities. Among the government actions, those dealing with government-sponsored enterprises active in mortgage markets were central. Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) are the key players here. Neither Fannie nor Freddie are “free-market” firms. They were chartered by the federal government, and although nominally privately owned until the onset of the bust in 2008, they were granted a number of government privileges in addition to carrying an implicit promise of government support should they ever get into trouble.

Fannie and Freddie did not actually originate most of the bad loans that comprised the housing crisis. Loans were made by banks and mortgage companies that knew they could sell those loans in the secondary mortgage market where Fannie and Freddie would buy and repackage them to sell to other investors. Fannie and Freddie also invented a number of the low down-payment and other creative, high-risk types of loans that came into use during the housing boom. The loan originators were willing to offer these kinds of loans because they knew that Fannie and Freddie stood ready to buy them up. With the implicit promise of government support behind them, the risk was being passed on from the originators to the taxpayers. If homeowners defaulted, the buyers of the mortgages would be harmed, not the originators. The presence of Fannie and Freddie in the mortgage market dramatically distorted the incentives for private actors such as the banks.

The Fed’s low interest rates, combined with Fannie and Freddie’s government-sponsored purchases of mortgages, made it highly and artificially profitable to lend to anyone and everyone. The banks and mortgage companies didn’t need to be any greedier than they already were. When banks saw that Fannie and Freddie were willing to buy virtually any loan made to under-qualified borrowers, they made a lot more of them. Greed is no more to blame for these bad mortgages than gravity is to blame for plane crashes. Gravity is always present, just like greed. Only the Federal Reserve’s easy money policy and Congress’ housing policy can explain why the bubble happened when it did, where it did.

Of further significance is the fact that Fannie and Freddie were under great political pressure to keep housing increasingly affordable (while at the same time promoting instruments that depended on the constantly rising price of housing) and to extend opportunities to historically “under-served” groups. Many of the new mortgages with low or even zero-down payments were designed in response to this pressure. Not only were lots of funds available to lend, and not only was government implicitly subsidizing the purchase of mortgages, but it was also encouraging lenders to find more borrowers who previously were thought unable to afford a mortgage.

Partnerships among Fannie and Freddie, mortgage companies, community action groups and legislators combined to make mortgages available to many people who should never have had them, based on their income and assets. Throw in the effects of the Community Reinvestment Act, which required lenders to serve under-served groups, and zoning and land-use laws that pushed housing into limited space in the suburbs and exurbs (driving up prices in the process) and you have the ingredients of a credit-fueled and regulatory-directed housing boom and bust.

All told, huge amounts of wealth and capital poured into producing houses as a result of these political machinations. The Case-Shiller Index clearly shows unprecedented increases in home prices prior to the bust in 2008. From 1946-1996, there had been no significant growth in the price of residential real estate. In contrast, the decade that followed saw skyrocketing prices.

It’s worth noting that even tax policy has been biased toward fostering investments in housing. Real estate investments are taxed at a much lower rate than other investments. Changes in the 1990s made it possible for families to pocket any capital gains (income from price appreciation) on their primary residences up to $500,000 every two years. That translates into an effective rate of 0% versus the ordinary income tax rates that apply to capital gains on other forms of investment. The differential tax treatment of capital gains made housing a relatively better investment than the alternatives. Although tax cuts are desirable for promoting economic growth, when politicians tinker with the tax code to favor the sorts of investments they think people should make, we should not be surprised if market distortions result.

Former Fed chair Alan Greenspan had made it clear that the Fed would not stand idly by whenever a crisis threatened to cause a major devaluation of financial assets. Instead, it would respond by providing liquidity to stem the fall. Greenspan declared there was little the Fed could do to prevent asset bubbles but that it could always cushion the fall when those bubbles burst. By 1998, the idea that the Fed would always bail out investors after a burst bubble had become known as the “Greenspan Put.” (A “put” is a financial arrangement where a buyer acquires the right to re-sell the asset at a pre-set price.) Having seen the Fed bailout investors this way in a series of events starting as early as the 1987 stock market crash and extending through 9/11, players in the housing market had every reason to expect that if the value of houses and other instruments they were creating should fall, the Fed would bail them out, too. The Greenspan Put became yet another government “green light,” signaling investors to take risks they might not otherwise take.

As housing prices began to rise, and in some areas rise enormously, investors saw opportunities to create new financial instruments based on those rising housing prices. These instruments constituted the next stage of the boom in this boom-bust cycle, and their eventual failure became the major focus of the bust.

Fancy Financial Instruments – Cause or Symptom?

Banks and other players in the financial markets capitalized on the housing boom to create a variety of new instruments. These new instruments would enrich many but eventually lose their value, bringing down several major companies with them. They were all premised on the belief that housing prices would continue to rise, which would enable people who had taken out the new mortgages to continue to be able to pay.

Mortgages with low or even nonexistent down payments appeared. The ownership stake the borrower had in the house was largely the equity that came from the house increasing in value. With little to no equity at the start, the amount borrowed and therefore the monthly payments were fairly high, meaning that should the house fall in value, the owner could end up owing more on the house than it was worth.

“If it ain’t broke, why do you want to fix it? Have the GSEs ever missed their housing goals?” – Maxine Waters, 2003

The large flow of mortgage payments resulting from the inflation-generated housing bubble was then converted into a variety of new investment vehicles. In the simplest terms, financial institutions such as Fannie and Freddie began to buy up these mortgages from the originating banks or mortgage companies, package them together and sell the flow of payments from that package as a bond-like instrument to other investors. At the time of their nationalization in the fall of 2008, Fannie and Freddie owned or controlled half of the entire mortgage market. Investors could buy so-called “mortgage-backed securities” and earn income ultimately derived from the mortgage payments of the homeowners. The sellers of the securities, of course, took a cut for being the intermediary. They also divided up the securities into “tranches” or levels of risk. The lowest risk tranches paid off first, as they were representative of the less risky of the mortgages backing the security. The high risk ones paid off with the leftover funds, as they reflected the riskier mortgages.

Buyers snapped up these instruments for a variety of reasons. First, as housing prices continued to rise, these securities looked like a steady source of ever-increasing income. The risk was perceived to be low, given the boom in the housing market. Of course that boom was an illusion that eventually revealed itself.

Second, most of these mortgage- backed securities had been rated AAA, the highest rating, by the three ratings agencies: Moody’s, Standard and Poor’s, and Fitch. This led investors to believe these securities were very safe. It has also led many to charge that markets were irrational. How could these securities, which were soon to be revealed as terribly problematic, have been rated so highly? The answer is that those three ratings agencies are a government-created cartel not subject to meaningful competition.

In 1975, the Securities and Exchange Commission decided only the ratings of three “Nationally Recognized Statistical Rating Organizations” would satisfy the ratings requirements of a number of government regulations.Their activities since then have been geared toward satisfying the demands of regulators rather than true competition. If they made an error in their ratings, there was no possibility of a new entrant coming in with a more accurate technique. The result was that many instruments were rated AAA that never should have been, not because markets somehow failed due to greed or irrationality, but because government had cut short the learning process of true market competition.

Third, changes in the international regulations covering the capital ratios of commercial banks made mortgage-backed securities look artificially attractive as investment vehicles for many banks. Specifically, the Basel accord of 1988 stipulated that if banks held securities issued by government-sponsored entities, they could hold less capital than if they held other securities, including the very mortgages they might originate. Banks could originate a mortgage and then sell it to Fannie Mae. Fannie would then package it with other mortgages into a mortgage-backed security. If the very same bank bought that security (which relied on income from the mortgage it originated), it would be required to hold only 40 percent of the capital it would have had to hold if it had just kept the original mortgage.

These rules provided a powerful incentive for banks to originate mortgages they knew Fannie or Freddie would buy and securitize. The mortgages would then be available to buy back as part of a fancier instrument. The regulatory structure’s attempt at traffic signals was a flop. Markets themselves would not have produced such persistently bad signals or such a horrendous outcome. Once these securities became popular investment vehicles for banks and other institutions (thanks mostly to the regulatory interventions that created and sustained them) still other instruments were built on top of them. This is where “credit default swaps” and other even more complex innovations come into the story. Credit default swaps were a form of insurance against the mortgage-backed securities failing to pay out. Such arrangements would normally be a perfectly legitimate form of risk reduction for investors but given the house of cards that the underlying securities rested on, they likely accentuated the false “traffic signals” the system was creating.

“I set an ambitious goal. It’s one that I believe we can achieve. It’s a clear goal, that by the end of this decade we’ll increase the number of minority homeowners by at least 5.5 million families. Some may think that’s a stretch. I don’t think it is. I think it is realistic. I know we’re going to have to work together to achieve it. But when we do, our communities will be stronger and so will our economy. Achieving the goal is going to require some good policies out of Washington. And it’s going to require a strong commitment from those of you involved in the housing industry.” – President George W. Bush, 2002

By 2006, the Federal Reserve saw the housing bubble it had been so instrumental in creating and moved to prick it by reversing monetary policy. Money and credit were constricted and interest rates were dramatically raised. It would be only a matter of time before the bubble burst.

Deregulation, a False Culprit

It is patently incorrect to say that “deregulation” produced the current crisis [See Appendix A]. While it is true that new instruments such as credit default swaps were not subject to a great deal of regulation, this was mostly because they were new. Moreover, their very existence was an unintended consequence of all the other regulations and interventions in the housing and financial markets that had taken place in prior decades. The most notable “deregulation” of financial markets that took place in the 10 years prior to the crash of 2008 was the passing during the Clinton administration of the Gramm-Leach-Bliley Act in 1999, which allowed commercial banks, investment banks and securities firms to merge in whatever manner they wished, eliminating regulations dating from the New Deal era that prevented such activity. The effects of this Act on the housing bubble itself were minimal. Yet, its passage turned out to be helpful, not harmful, during the 2008 crisis because failing investment banks were able to merge with commercial banks and avoid bankruptcy.

The housing bubble ultimately had to come to an end, and with it came the collapse of the instruments built on top of it. Inflation-financed booms end when the industries being artificially stimulated by the inflation find it increasingly difficult to buy the inputs they need at prices that are profitable and also find it increasingly difficult to find buyers for their outputs. In late 2006, housing prices topped out and began to fall as glutted markets and higher input prices due to the previous years’ race to build began to take their toll.

Falling housing prices had two major consequences for the economy. First, many homeowners found themselves in trouble with their mortgages. The low- or no-equity mortgages that had enabled so many to buy homes on the premise that prices would keep rising now came back to bite them. The falling value of their homes meant they owed more than the homes were worth. This problem was compounded in some cases by adjustable rate mortgages with low “teaser” rates for the first few years that then jumped back to market rates. Many of these mortgages were on houses that people hoped to “flip” for an investment profit, rather than on primary residences. Borrowers could afford the lower teaser payments because they believed they could recoup those costs on the gain in value. But with the collapse of housing prices underway, these homes could not be sold for a profit and when the rates adjusted, many owners could no longer afford the payments. Foreclosures soared.

Second, with housing prices falling and foreclosures rising, the stream of payments coming into those mortgage-backed securities began to dry up. Investors began to re-evaluate the quality of those securities. As it became clear that many of those securities were built upon mortgages with a rising rate of default and homes with falling values, the market value of those securities began to fall. The investment banks that held large quantities of securities were forced to take significant paper losses. The losses on the securities meant huge losses for those that sold credit default swaps, especially AIG. With major investment banks writing down so many assets and so much uncertainty about the future of these firms and their industry, the flow of credit in these specific markets did indeed dry up. But these markets are only a small share of the whole commercial banking and finance sector. It remains a matter of much debate just how dire the crisis was come September. Even if it was real, however, the proper course of action was to allow those firms to fail and use standard bankruptcy procedures to restructure their balance sheets.

“I think this is a case where Fannie and Freddie are fundamentally sound, that they are not in danger of going under.” – Barney Frank, 2008

The Recession is the Recovery

The onset of the recession and its visible manifestations in rising unemployment and failing firms led many to call for a “recovery plan.” But it was a misguided attempt to “plan” the monetary system and the housing market that got us into trouble initially. Furthermore, recession is the process by which markets recover. When one builds a 70-story skyscraper on a foundation made for a small cottage, the building should come down. There is no use in erecting an elaborate system of struts and supports to keep the unsafe structure aloft. Unfortunately, once the weaknesses in the U.S. economic structure were exposed, that is exactly what the Federal government set about doing.

One of the major problems with the government’s response to the crisis has been the failure to understand that the bust phase is actually the correction of previous errors. When firms fail and workers are laid off, when banks reconsider the standards by which they make loans, when firms start (accurately) recording bad investments as losses, the economy is actually correcting for previous mistakes. It may be tempting to try to keep workers in the boom industries or to maintain investment positions, but the economy needs to shift its focus. Corrections must be permitted to take their course. Otherwise, we set ourselves up for more painful downturns down the road. (Remember, the 2008 crisis came about because the Federal Reserve did not want the economy to go through the painful process of reordering itself following the collapse of the dot.com bubble.) Capital and labor must be reallocated, expectations must adjust, and the economic system must accommodate the existing preferences of consumers and the real resource constraints that producers face. These adjustments are not pleasant; they are in fact often extremely painful to the individuals who must make them, but they are also essential to getting the system back on track.

When government takes steps to prevent the adjustment, it only prolongs and retards the correction process. Government policies of easy credit produce the boom. Government policies designed to prevent the bust have the potential to transform a market correction into a full-blown economic crisis.

No one wants to see the family business fail, or neighbors lose their jobs, or charitable groups stretched beyond capacity. But in a market economy, bankruptcy and liquidation are two of the primary mechanisms by which resources are reallocated to correct for previous errors in decision-making. As Lionel Robbins wrote in The Great Depression, “If bankruptcy and liquidation can be avoided by sound financing nobody would be against such measures. All that is contended is that when the extent of mal- investment and over indebtedness has passed a certain limit, measures which postpone liquidation only tend to make matters worse.”

Seeing the recession as a recovery process also implies that what looks like bad news is often necessary medicine. For example, news of slackening home sales, or falling new housing starts, or losses of jobs in the financial sector are reported as bad news. In fact, this is a necessary part of recovery, as these data are evidence of the market correcting the mistakes of the boom. We built too many houses and we had too many resources devoted to financial instruments that resulted from that housing boom. Getting the economy right again requires that resources move away from those industries and into new areas. Politicians often claim they know where resources should be allocated, but the Great Recession of 2008 is only the latest proof they really don’t.

The Bush administration made matters worse by bailing out Bear Sterns in the spring of 2008. This sent a clear signal to financial firms that they might not have to pay the price for their mistakes. Then after that zig, the administration zagged when it let Lehman Brothers fail. There are those who argue that allowing Lehman to fail precipitated the crisis. We would argue that the Lehman failure was a symptom of the real problems that we have already outlined. Having set up the expectations that failing firms would get bailed out, the federal government’s refusal to bail out Lehman confused and surprised investors, leading many to withdraw from the market. Their reaction is not the necessary consequence of letting large firms fail, rather it was the result of confusing and conflicting government policies. The tremendous uncertainty created by the Administration’s arbitrary and unpredictable shifts – most notably Bernanke and Paulson’s September 23, 2008 unconvincing testimony on the details of the Troubled Asset Relief program – was the proximate cause of the investor withdrawals that prompted the massive bailouts that came in the fall, including those of Fannie Mae and Freddie Mac.

The Bush bailout program was problematic in at least two ways. First, the rationale for such aggressive government action, including the Fed’s injection of billions of dollars in new reserves, was that credit markets had frozen up and no lending was taking place. Several observers at the time called this claim into question, pointing out that aggregate new lending numbers, while growing much more slowly than in the months prior, had not dropped to zero.

Markets in which the major investment banks operated had indeed slowed to a crawl, both because many of their housing-related holdings were being revealed as mal-investments and because the inconsistent political reactions were creating much uncertainty. The regular commercial banking sector, however, was by and large continuing to lend at prior levels.

More important is this fact: the various bailout programs prolonged the persistence of the very errors that were in the process of being corrected! Bailing out firms that are suffering major losses because of errant investments simply prolongs the mal-investments and prevents the necessary reallocation of resources.

The Obama administration’s nearly $800 billion stimulus package in February of 2009 was also predicated on false premises about the nature of recession and recovery. In fact, these were the same false premises which informed the much-maligned Bush Administration approach to the crisis. The official justification for the stimulus was that only a “jolt” of government spending could revive the economy.

The fallacy of job creation by government was first exposed by the French economist Bastiat in the 19th century with his story of the broken window. Imagine a young boy throws a rock through a window, breaking it. The townspeople gather and bemoan the loss to the store owner. But eventually one notes that it means more business for the glazier. And another observes that the glazier will then have money to spend on new shoes. And then the shoe seller will have money to spend on a new suit. Soon, the crowd convinces them-selves that the broken window is actually quite a good thing.

The fallacy, of course, is that if the window was never broken, the store owner would still have a functioning window and could spend the money on something else, such as new stock for his store. All the breaking of the window does is force the store owner to spend money he wouldn’t have had to spend if the window had been left intact. There is no net gain in wealth here. If there was, why wouldn’t we recommend urban riots as an economic recovery program?

When government attempts to “create” a job, it is not unlike a vandal who “creates” work for a glazier. There are only three ways for a government to acquire resources: it can tax, it can borrow or it can print money (inflate). No matter what method is used to acquire the resources, the money that government spends on any stimulus must come out of the private sector. If it is through taxes, it is obvious that the private sector has less to spend, leading to losses that at least cancel out any jobs created by government. If it is through borrowing, that lowers the savings available to the private sector (and raises interest rates in the process), reducing the amount the sector can borrow and the jobs it can create. If it is through printing money, it reduces the purchasing power of private sector incomes and savings. When we add to this the general inefficiency of the heavily politicized public sector, it is quite probable that government spending programs will cost more jobs in the private sector than they create.

“This [Government Sponsored Housing] is one of the great success stories of all time…” Chris Dodd, 2004

The Japanese experience during the 1990s is telling. Following the collapse of their own real estate bubble, Japan’s government launched an aggressive effort to prop up the economy. Between 1992 and 1995, Japan passed six separate spending programs totaling 65.5 trillion yen. But they kept increasing the ante. In April of 1998, they passed a 16.7 trillion yen stimulus package. In November of that year, it was an additional 23.9 trillion. Then there was an 18 trillion yen package in 1999 and an 11 trillion yen package in 2000. In all, the Japanese government passed 10 (!) different fiscal “stimulus” packages, totaling more than 100 trillion yen. Despite all of these efforts, the Japanese economy still languishes. Today, Japan’s debt-to-GDP ratio is one of the highest in the industrialized world, with nothing to show for it. This is not a model we should want to imitate.

It is also the same mistake the United States made in the Great Depression, when both the Hoover and Roosevelt Administrations attempted to fight the deepening recession by making extensive use of the federal government and only made matters worse. In addition to the errors made by the Federal Reserve System that exacerbated the downturn that it created with inflationary policies in the 1920s, Hoover himself tried to prevent a necessary fall in wages by convincing major industrialists to not cut wages, as well as proposing significant increases in public works and, eventually, a tax increase. All of these worsened the depression.

Roosevelt’s New Deal continued this set of policy errors. Despite claims during the current recession that the New Deal saved us from economic disaster, recent scholarship has solidly affirmed that the New Deal didn’t save the economy. Policies such as the Agricultural Adjustment Act and the National Industrial Recovery Act only interfered with the market’s attempts to adjust and recover, prolonging the crisis. Later policies scared off private investors as they were uncertain about how much and in what ways government would step in next. The result was that six years into the New Deal, unemployment rates were still above 17% and GDP per capita was still well below its long-run trend.

In more recent years, President Nixon’s attempt to fight the stagflation of the early 1970s with wage and price controls was abandoned quickly when they did nothing to help reduce inflation or unemployment. Most telling for our case was the fact that the Fed’s expansionary policies earlier this decade were intended to “soften the blow” of the dot.com bust in 2001. Of course those policies gave us the inflationary boom that produced the crisis that began in 2008. If the current recession lingers or becomes a second Great Depression, it will not be because of problems inherent in markets, but because the political response to a politically generated boom and bust has prevented the error-correction process from doing its job. The belief that large-scale government intervention is the key to getting us out of a recession is a myth disproven by both history and recent events.

The Future That Awaits Our Children

Commentators have had a field day adding up the trillions of dollars that have been committed in the Bush bailout, the Obama stimulus, and the administration’s proposed budget for 2010. The explosion of spending and debt, whatever the final tab, is unprecedented by any measure. It will “crowd out” a significant portion of private investment, reducing growth rates and wages in the future. We are, in effect, reducing the income of our children tomorrow to pay for the bills of today and yesterday. Large government debt is also a temptation for inflation. In order for governments to borrow, someone must be willing to buy their bonds. Should confidence in a government fall enough (China, notably, has expressed some reluctance to continue buying our debt), it is possible that buyers will be hard to come by. That puts pressure on the government’s monetary authorities to “lubricate” the system by creating new money and credit from thin air.

So, even if the economy gets a lift in the near-term from either its own corrective mechanisms or from the government’s reinflation of money and credit, we have not recovered from the hangover. More of what caused the Great Recession of 2008 – easy money, regulatory interventions to direct capital in unsustainable directions, politicians and policy-makers rigging financial markets – is not likely to produce anything but the same outcome; asset price inflation and an eventual “adjustment” we call a recession or depression. Along the way, we will accumulate monumental debts which accentuate the future downturn and saddle us with new burdens.

Unless we can begin to undo the mistakes of the last decade or more, the future that awaits our children will be one that is poorer and less free than it should have been. With politicians mortgaging future generations to the tune of trillions, running and subsidizing auto and insurance companies, spending blindly and printing money hand- over-fist – all while blaming free enterprise for their own errors, we have a great deal to learn.

As Albert Einstein famously said, doing the same thing over and over again and expecting different results is the definition of insanity. The best we can hope for is that we learn the right lessons from this crisis. We cannot afford to repeat the wrong ones.

“The basic point is that the recession of 2001 wasn’t a typical postwar slump…. To fight this recession the Fed needs more than a snapback… Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.” Paul Krugman, 2002

Appendix A: The Myth of Deregulation

Appendix B: Government Interventions During Crisis Create Uncertainty

Appendix C: Suggested Readings

Cole, Harold and Lee E. Ohanian. 2004 New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis, Journal of Political Economy 112: 779-816.

Friedman, Jeffrey. 2009. A Crisis of Politics, Not Economics: Complexity, Ignorance, and Policy Failure, Critical Review 21: 127-183.

Higgs, Robert. 2008. Credit Is Flowing, Sky Is Not Falling, Don’t Panic, The Beacon, available at http://www.independent.org/blog/?p=201.

Marenzi, Octavio. 2008. Flawed Assumptions about the Credit Crisis: A Critical Examination of US Policymakers, Celent Research, available at http://www.celent.com/124_347.htm

Prescott, Edward and Timothy J. Kehoe (Editors). 2007. Great Depressions of the Twentieth Century, Minneapolis. Federal Reserve Bank of Minneapolis.

Taylor, John. 2009. Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis, Stanford, CA: Hoover Institution Press.

Woods, Thomas. 2009. Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse, Washington, DC: Regnery.

Biographies

Lawrence W. Reed is president of the Foundation for Economic Education – www.fee.org – and president emeritus of the Mackinac Center for Public Policy.

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University in Canton, NY. He has been a visiting scholar at Bowling Green State University and the Mercatus Center at George Mason University.

Peter J. Boettke is the Deputy Director of the James M. Buchanan Center for Political Economy, a Senior Research Fellow at the Mercatus Center, and a professor in the economics department at George Mason University.

John Allison served as the Chief Executive Officer of BB&T Corp. until December 2008. Mr Allison has been the Chairman of BB&T Corp., since July 1989. He serves as a Member of American Bankers Association and The Financial Services Roundtable.

pdf file: HouseUncleSamBuiltBooklet (1085597 bytes)

Peter J. BoettkePeter J. Boettke

Peter Boettke is a Professor of Economics and Philosophy at George Mason University and director of the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center. He is a member of the FEE Faculty Network.

RELATED ARTICLE: Housing Policies That Led to 2008 Collapse Still in Place, Says Freddie Mac Economist – PJ Meda June, 2017

VIDEO: It doesn’t Matter if Obama is a Muslim

One of the most common questions is: Is Obama a Muslim? Who knows, but it doesn’t make any difference. He always supports Islam, the Muslim Brotherhood and the Sharia.

What is important is the Islamification of the United States.

Hillary Clinton is not a Muslim but her chief advisor is Huma Abedin. Huma is closely linked with the Muslim Brotherhood. Hillary is an apologist for Sharia and Islam.

George Bush is not a Muslim but he advanced Islam with his declaration that Islam is the religion of peace. Bush would not use the word jihad, and gave us the “war on terror”.

The governor of Tennessee is not a Muslim but he only allows Muslims to train Tennessee law enforcement about “terror”.

Schools in America are beginning to adopt Sharia compliant textbooks.

Obama will be gone, but what difference does that make? Our politicians are Islamifying the U.S. without him.

VIDEO: The G. W. Bush, Grover Norquist connection to a domestic terrorist

Watch the Council on American Islamic Relations (CAIR) Executive Director Nihad Awad state his support of HAMAS.

According to Discover the Networks profile on Nihad Awad:

In September 1993, Awad attended a secret three-day summit in Philadelphia along with a number of people whom the FBI believed were Hamas members or supporters. Ten years later, during a deposition regarding that meeting, Awad claimed he could not recall whether he had been there.

Hamas is a U.S. State Department designated terrorist organization.

The same Nihad Awad standing behind and to the right of President George W. Bush, six days after 9-11-2001, as he proclaims “Islam is a religion of peace” in a mosque.

And how, you may ask, does that happen? At the behest of Grover Norquist, personal adviser to the Republican Party!

So it is not just a Hillary/Democrat thing, we are watching you Paul Ryan.

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Iraq and Weapons of Mass Destruction

The Middle East continues to spin into crisis. Iran continues to move toward great influence in the Middle East, and can now lay claim to be in control of Ramadi, Fallujah, and other regions of Iraq, the very nation America freed from ISIS and brought into order, and a level of peace and calm the country had not ever known.

Obama’s phenomenal combination of ignorance, incompetence, and spoken Islamic bias only adds to the mess. Yet, in spite of these factors, Democrats and their ideological cousins who make up the radical and socialist left still blame former President Bush claiming if he had not lied and went after chemical weapons allegedly stored in Iraq by Saddam Hussein, none of the calamities exploding in the Middle East would be occurring today. Once again the liberal mantra is Bush lied; that there were no Weapons of Mass Destruction hidden by Saddam Hussein. Well…I received the below artocle from a U.S. Navy Captain (Ret.), and I thought you might like to read another side to the age-old charges.

The following report was published in the New York Times. The NYT is the last place I would have expected a report such as this. I don’t presume that the clandestine purchase of WMD’s will alter the opinions of any liberals who have made up their minds as to the nonexistence of such weapons, because this is what they intend to inscribe in the secondary school history books for the edification of the next generation of American citizens, and once entered, it etched in the minds of our youth to perpetuity, and truth obliterated in a sea of political correctness.


 

NYT: CIA bought, destroyed undeclared Iraqi chemical weapons demanded by UN

POSTED BY ED MORRISSEY

The topic of WMD in Iraq has been a hot potato for more than two decades, ever since the end of the first Gulf War and the procession of 17 UN Security Council resolutions demanding that Saddam Hussein verifiably destroy them. Hussein ignored those demands and committed numerous violations of the 1991 cease-fire agreement that suspended the war. In 2003, the US went back to war in part over the issue of WMD, deposing Hussein but coming up empty on the accusations of chemical and biological weapons, which prompted the “Bush lied” arguments that have echoed ever since.

Occasionally, caches of chemical weapons have been found in Iraq, reviving the debate, but they have been weapons that had already been declared and transferred to UN control before the 2003 invasion. If the WMD existed in Iraq, what happened to it? Many suspected that it got transferred to Syria prior to the 2003 invasion, but the New York Times reports today that the CIA actually did find at least some of the suspected and undeclared caches of chemical weapons — and destroyed them:

The Central Intelligence Agency, working with American troops during the occupation of Iraq, repeatedly purchased nerve-agent rockets from a secretive Iraqi seller, part of a previously undisclosed effort to ensure that old chemical weapons remaining in Iraq did not fall into the hands of terrorists or militant groups, according to current and former American officials.

The extraordinary arms purchase plan, known as Operation Avarice, began in 2005 and continued into 2006, and the American military deemed it a nonproliferation success. It led to the United States’ acquiring and destroying at least 400 Borak rockets, one of the internationally condemned chemical weapons that Saddam Hussein’s Baathist government manufactured in the 1980s but that were not accounted for by United Nations inspections mandated after the 1991 Persian Gulf war. …

In confidential declarations in the 1990s to the United Nations, Iraq gave shifting production numbers, up to 18,500. It also claimed to have destroyed its remaining stock before international inspectors arrived after the Persian Gulf war. …

The handoffs varied in size, including one of more than 150 warheads. American ordnance disposal technicians promptly destroyed most of them by detonation, the officials said, but some were taken to Camp Slayer, by Baghdad’s airport, for further testing.

This is the first time that there has been any media reporting on finds specific to the disputed munitions that Hussein refused to acknowledge. It sounds as though there were a large quantity of Borak rockets eventually procured, too, not just a few leftovers that might have been innocently overlooked by the previous dictatorship in Iraq. C.J. Chivers and Eric Schmitt also report that these were not the kind of exhausted and expired chemical weapons that the UN had been storing, but still potent enough to alarm the US when they were discovered.

Why this was kept quiet was anyone’s guess, but the secret was tightly held. Perhaps the CIA and Pentagon wanted to keep it under wraps so that they could quietly buy as many of the weapons off the black market as they could, without tipping their hand to the insurgency. That might have been good strategy, but the Pentagon kept it so quiet that it never told veterans serving in Iraq or the VA physicians that treated them later about the possibility that they had contact with chemical weapons from any source. It seems unlikely that the insurgents didn’t get their hands on any of the Boraks — and it’s not entirely clear that the US got them all, either.

This should recast the WMD debate from the 2003 invasion, but it probably won’t. At least so far, there’s no indication that the US found the new chemical- and biological-weapons programs that their faulty intelligence showed Saddam Hussein restarting between the two wars, and that will overshadow even a large number of undeclared saran-filled Borax in any attempt to show that the issue of WMD Intel was at least nuanced. On the other hand, we’ve waited almost a decade to find this out, so it’s impossible to say what else may have been discovered and not declared by the Pentagon and CIA during that period. It may be another decade before we can safely assume anything.

The Logic of Testing  – Common Sense, NOT Common Core

Our Florida State and Federal legislators claim we must hold schools accountable for results so that they, the government, can cost justify the expense of education to the taxpayers.  Since 1985, they have increased their emphasis on testing, culminating in No Child Left Behind, Race to the Top and Common Core.

Well, let’s see how that is working, exactly.  We have over 40 years of information shown on the CATO Institute chart showing the dramatic escalation of costs, while test scores have actually declined:

federal spending per student since 1970

Most logical people would conclude that increased spending on federal government programs has not been an effective tool to increase the effectiveness of our schools.  Logic is not all that common in government, however, and government programs don’t shut down just because they aren’t working.

This is especially evident in Florida, where testing now absorbs nearly 40% of class time available for learning, and billions of dollars are being spent on Florida State Assessments and Common Core.  These assessments are proprietary, however, and do not provide any comparison to other states; so much for accountability.

When actual, nationally normed tests are used to compare Florida’s students, year over year, to other states, we find the troubling truth.  The ACT is such a test and this how Florida’s students measure up over the last 20 years.  We are now a dismal 47th in the U.S.:

florida act scores

I attended our Lee County School Board meeting  where members were barraged with community complaints and tried to weigh options for the onerous burdens of the new bill, HB7069, recently signed into law by Governor Scott.   Similar discussions are being held at all school boards throughout the state.

The State bullies ignored the declining results reported by nationally normed ACT tests since 1998 and doubled down to erode accountability, reduce class time for learning, cede control to the state, dramatically increase cost, and endanger our children’s privacy rights.  They kept Common Core Curriculum and High Stakes Testing in place.

Let’s lay out the facts:

1.)    We don’t have the money to pay for schools to house our kids and yet the State wants us to build, maintain and update elaborate and expensive computer testing facilities.

2.)    The state wants us to pay about $34 per test for required state tests.

3.)    The tests are not validated and scores won’t be available until the middle of the next school year, yet the state wants them to be 30% of the student scores on end of course tests.  This means no report cards could be issued or decisions reached about student progress plans this year.

4.)    The FSA tests have disgracefully and repeatedly crashed, causing delays and confusion all over the state.  Starts and restarts themselves invalidate results.  Crashes were caused by the vendor, AIR, which was paid $220 Million to create and deliver this product.  No information has been presented from the state about recouping the millions of dollars schools lost in the crashes.

5.)    The tests will take about 9 days of student time if there was no conflict with sharing of computers.  Under current computer availability management, students are losing up to 40% of their class time to testing and delays.

6.)    We don’t see the test questions to see if they are appropriate or accurate and can’t use them to inform students.

7.)    Students taking tests on computers are being unfairly and inaccurately measured through the prism of their keyboarding skills, not their actual knowledge.

8.)    We know our children’s information is being data mined when they take tests on computers.

9.)    We have not been given any reason why tests must be given on computer.

10.)Pencil and paper tests are available to measure our students’ progress.

  1. They are MUCH less expensive
  2. They never crash
  3. It is difficult or impossible for the corporate cronies to data mine paper tests.
  4. Students can take them at their own desks without delays and confusion.
  5. Pencil and paper tests fairly represent the student’s knowledge, not their computer skills.
  6. Tests can be reviewed for accuracy and validity, and shared with teachers to inform instruction.

Given these facts it is clear.  Parents, teachers and local districts do not need the federal or state government to tell us how to educate our kids.  Our teachers are certified and the schools are accredited.  The STATE is NOT.  We need to restore local control by following this simple, “Common Sense, not Common Core” plan.

  1. Select from the best “off the shelf”standards which are available for free and not copyrighted
  2. Restore portfolio grading and eliminate high stakes tests
  3. Test on paper to reduce expense, eliminate data mining, and add back as much as 40% class time for learning

It’s a simple plan that will reduce bureaucracy, complexity, costs and inefficiency.  Tools to implement this are immediately available and are not copyrighted.  Our students will thrive in this environment and educational freedom will result in excellence.

Share this with your local school board now.

Obama is Bush light!

He’s launched airstrikes and is threatening ground troops but IT’S NOT WAR. He took a victory lap for Osama bin Laden but opposed the means that got his location. He’s broken every Progressive policy and gospel on the books, and he’s doing the same things for the same reasons his predecessor did, only he’s doing them late, doing them badly and blaming everyone else.

In his latest Firewall Bill Whittle shows why Barack Obama is nothing more than Bush Lite.

Top 5 questions to ask a Liberal

Greetings from our nation’s Capitol where I am to speak this afternoon at the Faith and Freedom Coalition. And as always, I enjoyed a nice early morning 5-mile run from the bat cave over to the D.C. mall — doggone it is more humid up here than South Florida.

As I was pounding the pavement, I came up with a list of questions I’d like to pose to a liberal progressive. Well, for every mile it seems I came up with one — glad I didn’t try running 8 miles this morning!

Here you go:

1. If former President George W. Bush was un-American for adding $4 trillion to the national debt, then what is President Barack Hussein Obama who is on his way to adding $8 trillion — and still has two more years to go? Yep, under Obama the national debt has risen from $10.67 trillion to almost $17.5 trillion.

2. If as Obama states, “we leave no man behind,” then what of Marine Sergeant Andrew TahmooressiPastor Saeed Abedini and Kenneth Bae — not to mention still-imprisoned Meriam Yahia Ibrahim – who had her chains removed after giving birth to her daughter, Maya? (And by the way, she is still under a death sentence under Sharia law for marrying a Christian). Nah, those folks don’t help Obama’s political agenda and certainly aren’t as important as recognizing illegal immigrant children “dreamers” at the White House.

3. When the average price of gasoline hit $2.50 a gallon, liberals and their media accomplices went apoplectic (you may have to define that word to a liberal friend) on George W. Bush. Why so silent now, when it’s $3.67?

4. If the late and former President Richard Nixon resigned over a bad case of “breaking and entering” (and the liberal media made a big hoopla over that), what does it take for Barack Hussein Obama to consider the same? Or does the color of skin trump content of character in America now? By the way, I’m planning on my computer crashing next year around tax return time.

5. If it is racist to disagree with the proven failed policies of Barry Soetoro, oops, I mean Barack Hussein Obama, then what is it when liberal progressives disrespect, dismiss, denigrate, demean, disparage, discredit and seek to destroy black conservative Republicans? Funny, all those “D” words come from the Democrat party. Don’t believe me, just look for the responses to this post from liberal progressives (so predictable).

Now, just so you’re aware, be careful when asking these questions to be outside the range of spittle and frothing of the mouth. As well, stand clear so as not to be struck by a liberal progressives wild arm-flinging tantrums as they throw themselves on the floor in a mad rage. These are the telltale symptoms of liberals exposed to the truth — similar to exposing vampires to light. But know that this reaction affirms you are right on the issues and confirms the liberal progressive inability to intellectually respond.

EDITORS NOTE: This column originally appeared on AllenBWest.com.