The previous chapter, "The Rise of Socialism," covers the period from the Great Depression until October 3, 2008. Two government-created organizations, Fannie Mae and Freddie Mac, are at the heart of our current economic crisis coupled with a number of politicians and community organizations. In 1938, Fannie Mae was created as part of the New Deal. The collapse of the national housing market in the wake of the Great Depression discouraged private lenders from investing in home loans. Fannie Mae was established in order to provide local banks with federal money to finance home mortgages in an attempt to raise levels of home ownership and the availability of affordable housing.

Initially, Fannie Mae operated like a savings and loan, enabling local banks to charge low interest rates on mortgages for the benefit of the home buyer. This led to the development of what is now known as the secondary mortgage market. Within the secondary mortgage market, companies such as Fannie Mae are able to borrow money from foreign investors at low interest rates because of the financial support that they receive from the U.S. Government. It is this ability to borrow at low rates that allowed Fannie Mae to provide fixed interest rate mortgages with low down payments to home buyers. Fannie Mae makes a profit from the difference between the interest rates homeowners pay and foreign lenders charge.

For the first thirty years, Fannie Mae held a monopoly over the secondary mortgage market. In 1968, Lyndon B. Johnson privatized Fannie Mae in order to remove it from the national budget. At this point, Fannie Mae began operating as a government supported enterprise (GSE), generating profits for stock holders while enjoying the benefits of exemption from taxation and oversight. In order to prevent any further monopolization of the market, a second GSE known as Freddie Mac was created in 1970. In 2003 Fannie Mae and Freddie Mac controlled about 90 percent of the nation's secondary mortgage market. Their combined assets were 45% larger than the nation's largest bank, and their combined debt was equal to 46% of the national debt.

Enter Congress in 1977, which passed the Community Reinvestment Act and implemented regulations intended to encourage banking institutions to help meet the credit needs of the communities in which they operate. As the years progressed, organizations such as the Association of Community Organizers for Reform Now (ACORN) became active in the area of housing advocacy. Frankly, ACORN and other activist organizations used demonstrations and threats of adverse legal action against lending institutions to force them to provide loans to people who were marginally qualified (in economic terms) for mortgage loans. In the early 1990s, Stanley Kurtz, senior fellow at the Ethics and Policy Center, reported that Barack Obama was personally recruited by Chicago's ACORN to run training sessions in "direct action." That's the euphemism for the techniques used under the cover of the federal Community Reinvestment Act to intimidate financial institutions into giving what have been called "Ninja" loans - no income, no job, no assets - to people who couldn't afford them.

Fannie Mae and Freddie Mac were the only two Fortune 500 companies not required to inform the public about any financial difficulties that they may be having. In the event that there was some sort of financial collapse within either of these companies, U.S. taxpayers could be held responsible for hundreds of billions of dollars in outstanding debts. An investigation by the Justice Department and the SEC into the accounting practices at Freddie Mac in the early 1990s revealed accounting errors in the amount of 4.5 to 4.7 billion dollars and resulted in the termination of three of the company's top executives.

In 2004, congressional hearings took place where an inspector testified to the problems and abuses his agency found in Freddie Mac. He was excoriated by all Democrat members of the committee who heaped praise on the executives in charge of the mortgage giant. The committee members, including Rep. Barney Frank and Rep. Maxine Waters, threatened the inspector with investigations into his activities. Both Freddie Mac and Fannie Mae have been large contributors to Sen. Chris Dodd and Rep. Frank to name but a few. Even the disgraced CEO Franklin Raines mentioned the risk of these generous lending measures would increase significantly if the economy started experiencing problems.

The $700 billion bailout package has now grown to an $850 billion rescue package and "may" help the current situation. The ultimate problem is that it will exacerbate things in the long term. At some point, peoples' investments will recover to their current value levels, but due to the inflation caused by the solution their investments will actually be only worth half of what they were before the wheels fell off. Given Congress' ability to predict costs, I wouldn't be surprised if the full bill to exceeded $1.5 trillion before it's all over.

In the 1950s, President Eisenhower warned us about the "military-industrial" complex and its potentially harmful effects on the U.S. I'm afraid the "financial, mortgage banking, racial, political" complex, has been, and will be, far more damaging to the U.S. than what Ike warned us about. When you make ubiquitous decisions on essentially economic issues and base those decisions solely on social rationale and criteria, you bet the ranch. They did and we are now the losers!

In this column, it's impossible to identify all the people who had a hand in this mess. The blame doesn't fall solely on the President, Congress, the Courts, the Democrats, the Republicans, Wall Street, Fannie Mae, Freddie Mac, banks, or individuals. But there are some who bear a larger share than many others. The overarching strategy in an election year is to make the party in power look bad; and President Bush is a convenient, often hourly, target. The House could have passed the bailout on the first vote but the Democrats deliberately chose not to marshal their votes so the Republicans would take more heat - more politics at our expense. Unfortunately, the real guilty parties will all never be accurately identified nor properly punished for their malfeasance and the damage they have inflicted on our country - economically and socially.

Once again, we've proven there's no free lunch. No matter the attractions of socialism and its promises of equality, the lust for power, unbridled greed, and mendacity will trump all the promises.

I'm afraid the potential book will be written far sooner than any of us would have predicted.

Well, that's what's been on my mind.

(Note: Information on Freddie Mac and Fannie Mae were derived from an article published in 2003 by Rob Alford)