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The end of the American Dream

The opinions expressed by columnists are their own and do not necessarily represent the views of Townhall.com.

As our new political leadership leads us into the fiscal twilight zone, is it too much to ask for a little honesty as they do it?

The day after President Obama unveiled his plan to bail out distressed mortgage holders, Treasury Secretary Geithner and Housing Secretary Donovan wrote an op-ed in USA Today explaining it.

"Ordinarily, American homeowners don't need government help ... But these are no ordinary times," they say.

But practically every American homeowner does get government help by being able to deduct mortgage interest from their taxes.

And, Fannie Mae and Freddie Mac, the taxpayer backed quasi-government mortgage behemoths, own or insure around fifty percent of all outstanding mortgages in the country.

So, how about a little truthfulness here. It would be extraordinary if the government did not get involved. Which gets to the broader point.

This $275 billion mortgage plan, coupled with the "stimulus" package and the banks bailout, adds up to a cool couple trillion dollars. In one short month, the Obama administration has committed us taxpayers to new obligations equal to what the whole federal budget was a couple years ago.

Beyond any liberal Democrat's wildest dreams, this unprecedented government-spending binge, has been enabled by a narrative. According to this narrative, we now understand that unbridled capitalism doesn't work. Unregulated markets are behind today's problems and all agree that we need more government.

According to our president, because "Big banks traded in risky mortgages ... lenders took advantage of homebuyers ... homebuyers knowingly borrowed too much ..." we have today's housing crisis.

But it's all so untrue.

What has failed in our country is not capitalism. It is our intentional undermining of it.

As government spends us into oblivion, and we recall Roosevelt and the New Deal, we should also recall the role that the Supreme Court played then in changing the rules by which we live.

In a decision in 1937, Helvering v Davis, the Supreme Court upheld the constitutionality of key provisions of the new Social Security Act. Until then, the power of Congress to tax us was limited to paying for those functions of government explicitly laid out in the Constitution. This decision opened the door to government taxing us for anything the Congress could deem in the "general welfare." In other words, anything they could pass.

A central tenet of capitalism, of course, is private property. But what is private property in a nation where citizens can be taxed to pay for anything politicians can get passed?

In 1938, the very next year, Fannie Mae was created, which got the government -- taxpayers -- into the housing business.

In 1968, President Johnson took Fannie Mae off budget and transformed it into a government-chartered company to buy and insure mortgages. A private company whose securities were guaranteed by we taxpayers. Private investors get the profits and taxpayers pick up the losses.

Could we have had this housing disaster without Fannie Mae and its brother Freddie Mac? Certainly not.

Why would a mortgage originator sell a mortgage that couldn't get paid back? Only if it could be re-sold to taxpayer backed Fannie or Freddie.

Both went belly up last year and put under explicit government control. Their five trillion dollars in debt went right onto us taxpayers, doubling the outstanding debt of the US government.

Now President Obama is "solving" our mortgage crisis by adding another $200 billion of taxpayer guarantees behind these two entities and, for the first time, allowing them to guarantee mortgage refinancing for more than 80 percent of the home value.

And those who can't make their mortgage payments will be subsidized by taxpayers to the tune of $75 billion so they can.

A failure of capitalism? This could never happen in a country where private property was respected and people were not subsidized by government to buy what they can't afford.

Rather than saving the American dream, the Obama team could be bringing it to an end.

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