RECENT HISTORY REVIEW

Government and policy is almost impossible to discuss! Vested interests, from all sides, have turned us ordinary American's into divided camps!

Before we knew it, we were suddenly "red" states, "blue" states, and "toss up" states (whatever that is). We are "left" and we are "right"; we are also "hard right" and "hard left"; we are "tea baggers" and we are "tax & spend liberals"; and who knows what else we are! Worse of all; we are angry at each other!

I would like you to put that anger aside. We are all Americans as far as I know.

I know you! After eight years active duty in the Air Force I had the opportunity to meet many of you from all over the country; North, South, West, and East.

Remember how we all came together at a particular base and worked together to make the mission happen! I don’t remember any separation as I see today. I only remember we worked hard and had a lot of fun.

Black, White, Brown, Native American, or Immigrant; it made no difference! We were just individual Airmen! The military people of today are the same as we were. They still brag about their state more than anything!

Oh, we have differences. However, they are not what I described above; not what you hear from the news media; and not what you hear from the politicians. If you want some valid separations here they are:

We are the poor & underprivileged.
We are the ordinary working & small business people.
We are the remnants of what was a middle class.
Lastly we are the rich & powerful (or) “wannabes” also
known as the “overclass”. (Nice play on words derived
from the “underclass”).

Because we have heard so much false information about one party or the other, we need to take a hard look at history and the facts. Everyday we hear about the deficits and spending!

How about we look back, starting in 1978 with Jimmy Carter and forward to Barack Obama? I put together the chart you see below. (I must say, trying to find the numbers, due to the way both parties manipulate things, is tough!

Back to the chart: Because the chart is fairly large, I will copy various lines from the chart when I discuss them. This is to keep you from having to page back and forth. First, let’s understand the chart.

1	2	3	4	5	6	7	8	9	10	11
								Democrat	Republican	Debt
Fiscal		Income	Spending	Surplus	Total	House	Senate	President	President	Held By
Year	President	Receipts	Outlays	(or) Deficit	Public Debt	Majority	Majority	Deficits	Deficits	Fed Accts

As can be see, the chart has 11 columns. These are defined as follows: Column 1 – Fiscal Year of Presidency.Column 2 – President’s Name. Column 3 – Income Receipts. Column 4 – Spending Outlays. Column 5 – Surplus (positive number) or Deficit (negative number). Column 6 – Total Public Debt (borrowed from the public by issuing Treasury Bills). Column 7 – House Majority Party during this period. Column 8 – Senate Majority Party during this period. Column 9 – Deficits created by a Democratic President.Column 10 – Deficits created by a Republican President. Column 11 – Debt Held By Federal Accounts. (This debt is not impacted by annual surpluses or deficits. It is technically part of the federal debt but is determined by law and consists primarily of trust funds such as Social Security, etc.) Depending on who is quoting the Federal Debt and their individual motivation, they may include this number to make the then current Administration look good or bad. For all purposes in this web site, this debt will not be considered because the Administration has no real control over this type of funds.

Now let’s take a look at the actual chart.

1	2	3	4	5	6	7	8	9	10	11
								Democrat	Republican	Debt
Fiscal				Surplus	Total	House	Senate	President	President	Held By
Year	President	Receipts	Outlays	(or) Deficit	Public Debt	Majority	Majority	Deficits	Deficits	Federal Accts

1978	J. Carter-D	399,561	458,746	-59,185	607,126	D	D	-59,185		169,476
1979		463,302	504,028	-40,726	640,306	D	D	-99,911		189,161
1980		517,112	590,941	-73,830	711,923	D	D	-173,741		197,118
1981		599,272	678,241	-78,968	789,410	D	D	-252,709		205,418
1982	R. Reagan-R	617,766	745,743	-127,977	924,575	D	D		-127,977	212,740
1983		600,562	808,364	-207,802	1,137,268	D	D		-335,779	234,392
1984		666,486	851,853	-185,367	1,306,975	D	D		-521,146	257,611
1985		734,088	946,396	-212,308	1,507,260	D	D		-733,454	310,163
1986		769,215	990,441	-221,227	1,740,623	D	D		-954,681	379,878
1987		854,353	1,004,083	-149,730	1,889,753	D	D		-1,104,411	456,203
1988		909,303	1,064,481	-155,178	2,051,617	D	D		-1,259,589	549,487
1989		991,190	1,143,829	-152,639	2,190,716	D	D		-1,412,228	677,084
1990	G. H Bush-R	1,032,094	1,253,130	-221,036	2,411,557	D	D		-1,633,264	794,733
1991		1,055,093	1,324,331	-269,238	2,688,999	D	R		-1,902,502	909,179
1992		1,091,328	1,381,649	-290,321	2,999,737	D	R		-2,192,823	1,002,050
1993		1,154,471	1,409,522	-255,051	3,248,397	D	R		-2,447,874	1,102,647
1994	B. Clinton-D	1,258,721	1,461,907	-203,186	3,433,065	D	R	-455,895		1,210,242
1995		1,351,932	1,515,884	-163,952	3,604,378	R	R	-163,952		1,316,208
1996		1,453,177	1,560,608	-107,431	3,734,073	R	R	-107,431		1,447,392
1997		1,579,423	1,601,307	-21,884	3,772,344	R	R	-21,884		1,596,862
1998		1,721,955	1,652,685	69,270	3,721,099	R	D	69,270		1,757,090
1999		1,827,645	1,702,035	125,610	3,632,363	R	D	125,610		1,973,160
2000		2,025,457	1,789,216	236,241	3,409,804	R	D	236,241		2,218,896
2001		1,991,426	1,863,190	128,236	3,319,615	R	D	128,236		2,450,266
2002	G. W Bush-R	1,853,395	2,011,153	-157,758	3,540,427	R	R (VP)		-2,605,632	2,657,974
2003		1,782,532	2,160,117	-377,585	3,913,444	R	R (VP)		-2,983,217	2,846,570
2004		1,880,279	2,293,006	-412,727	4,295,544	R	R (VP)		-3,395,944	3,059,113
2005		2,153,859	2,472,205	-318,346	4,592,212	R	R (VP)		-3,714,290	3,313,088
2006		2,407,254	2,655,435	-248,181	4,828,972	R	R (VP)		-3,962,471	3,622,378
2007		2,568,239	2,728,940	-160,701	5,035,129	R	R (VP)		-4,123,172	3,915,615
2008		2,524,326	2,982,881	-458,555	5,802,725	D	D		-4,581,727	4,183,032
2009		2,156,654	3,997,842	-1,841,188	8,531,367	D	D		-6,422,915	4,336,088
2010	B. Obama-D	2,332,645	3,591,076	-1,258,431	9,881,895	D	D	-1,130,195		4,574,408

	TOTAL DEFICITS BY POLITICAL PARTY PRESIDENT							-1,130,195	-6,422,915


Source: http://www.whitehouse.gov/omb/budget/fy2010/assets/hist01z1.xls & specific research for 2008, 2009,& 2010.

During the years, 1978 to 1981 the chart shows Jimmy Carter was President. You probably remember this as 1977 to 1980. An explanation is required here.

When dealing with Presidential Budgets, it is necessary to use Fiscal Years, as is the case in the chart.

Jimmy Carter was actually elected on the first Tuesday in November, 1976. He was sworn in as President, January 20, 1977. However, because the Federal Government runs on a Fiscal Year (for financial purposes), Jimmy Carter, as are all Presidents, was required to operate from January 20, 1977 until September 30, 1977 based on the previous President’s budget and commitments.

Jimmy Carter’s budget did not start until October 1, 1977. Because only the last three months of 1977 were based on his budget, the Fiscal Year Presidency is defined as 1978 thru 1981.

The same is done with President Reagan and all other Presidents shown in the chart.

To help clarify something more current; President Obama operated most of 2009 on President Bush’s budget which was created on October 1, 2008 and ran thru September 30, 2009. President Obama’s budget did not start until October 1, 2009.

That is why, like all other Presidents, his Fiscal Year Presidency is defined as starting in 2010 (the first really full year he is operating with his own budgets and commitments).

Pause just a moment here… Can you see the opportunity for political mischief with this accounting fiscal year?

If the previous President was running a surplus, the new president would claim the credit in his or her first year; if that previous President was running a deficit (like Bush), the new President would get the blame (like Obama).

Now take a few minutes and look at the entire chart. In particular, look at columns 9 and 10 regarding which Presidents have created which deficits. (I have displayed another copy of the chart after the next paragraph.)

Being an Independent, as I am, I was surprised and I am certain you are!! Given all the noise on various TV Channels and from the Hard Right Wing, I certainly did not expect to see the Republicans holding a commanding lead in the creation of federal deficits since 1978!!!

Democratic Presidents created one trillion, one hundred thirty billion ($1,130,195) in deficits; Republican Presidents created six trillion, four hundred twenty two billion in deficits ($6,422,915)!!!

WE SHOULD ALL HAVE LEARNED SOMETHING FROM THIS!! WE NEED TO BE ACCURATLY INFORMED!

1	2	3	4	5	6	7	8	9	10	11
								Democrat	Republican	Debt
Fiscal				Surplus	Total	House	Senate	President	President	Held By
Year	President	Receipts	Outlays	(or) Deficit	Public Debt	Majority	Majority	Deficits	Deficits	Federal Accts

1978	J. Carter-D	399,561	458,746	-59,185	607,126	D	D	-59,185		169,476
1979		463,302	504,028	-40,726	640,306	D	D	-99,911		189,161
1980		517,112	590,941	-73,830	711,923	D	D	-173,741		197,118
1981		599,272	678,241	-78,968	789,410	D	D	-252,709		205,418
1982	R. Reagan-R	617,766	745,743	-127,977	924,575	D	D		-127,977	212,740
1983		600,562	808,364	-207,802	1,137,268	D	D		-335,779	234,392
1984		666,486	851,853	-185,367	1,306,975	D	D		-521,146	257,611
1985		734,088	946,396	-212,308	1,507,260	D	D		-733,454	310,163
1986		769,215	990,441	-221,227	1,740,623	D	D		-954,681	379,878
1987		854,353	1,004,083	-149,730	1,889,753	D	D		-1,104,411	456,203
1988		909,303	1,064,481	-155,178	2,051,617	D	D		-1,259,589	549,487
1989		991,190	1,143,829	-152,639	2,190,716	D	D		-1,412,228	677,084
1990	G. H Bush-R	1,032,094	1,253,130	-221,036	2,411,557	D	D		-1,633,264	794,733
1991		1,055,093	1,324,331	-269,238	2,688,999	D	R		-1,902,502	909,179
1992		1,091,328	1,381,649	-290,321	2,999,737	D	R		-2,192,823	1,002,050
1993		1,154,471	1,409,522	-255,051	3,248,397	D	R		-2,447,874	1,102,647
1994	B. Clinton-D	1,258,721	1,461,907	-203,186	3,433,065	D	R	-455,895		1,210,242
1995		1,351,932	1,515,884	-163,952	3,604,378	R	R	-163,952		1,316,208
1996		1,453,177	1,560,608	-107,431	3,734,073	R	R	-107,431		1,447,392
1997		1,579,423	1,601,307	-21,884	3,772,344	R	R	-21,884		1,596,862
1998		1,721,955	1,652,685	69,270	3,721,099	R	D	69,270		1,757,090
1999		1,827,645	1,702,035	125,610	3,632,363	R	D	125,610		1,973,160
2000		2,025,457	1,789,216	236,241	3,409,804	R	D	236,241		2,218,896
2001		1,991,426	1,863,190	128,236	3,319,615	R	D	128,236		2,450,266
2002	G. W Bush-R	1,853,395	2,011,153	-157,758	3,540,427	R	R (VP)		-2,605,632	2,657,974
2003		1,782,532	2,160,117	-377,585	3,913,444	R	R (VP)		-2,983,217	2,846,570
2004		1,880,279	2,293,006	-412,727	4,295,544	R	R (VP)		-3,395,944	3,059,113
2005		2,153,859	2,472,205	-318,346	4,592,212	R	R (VP)		-3,714,290	3,313,088
2006		2,407,254	2,655,435	-248,181	4,828,972	R	R (VP)		-3,962,471	3,622,378
2007		2,568,239	2,728,940	-160,701	5,035,129	R	R (VP)		-4,123,172	3,915,615
2008		2,524,326	2,982,881	-458,555	5,802,725	D	D		-4,581,727	4,183,032
2009		2,156,654	3,997,842	-1,841,188	8,531,367	D	D		-6,422,915	4,336,088
2010	B. Obama-D	2,332,645	3,591,076	-1,258,431	9,881,895	D	D	-1,130,195		4,574,408

	TOTAL DEFICITS BY POLITICAL PARTY PRESIDENT							-1,130,195	-6,422,915


Source: http://www.whitehouse.gov/omb/budget/fy2010/assets/hist01z1.xls & specific research for 2008, 2009,& 2010.

Now, I would like to move on to the next element of history that has been so badly distorted.

The American economy is the largest in the world! Consequently, with anything this large, there is a great deal of momentum associated with the economy! To put this another way; once something is started it takes a long time to stop it or change direction!

Our current problem started in late 1990’s; about 1998 or so. That is when housing prices started to move upward; not too fast at first but began to accelerate in about 2001.

That would have been OK and the normal market forces would have stopped that acceleration, if not for one thing! That one thing was Wall Street!

The escalating prices would have stopped because potential buyers would have been priced out of the market. Standard banking and mortgage rules, at the time, would have stopped people from getting mortgages!

Small things like needing a 20% down payment and enough income to pay the debt! If most people could not get a mortgage, the overpriced house would not sell and the seller would have to reduce the price to sell it. Thus, the price escalation would stop!

Here I will immediately separate myself from those elitists who like to blame “those people”. You know, “those people” who bought houses they could not afford!

Wall Street and the banks invented “derivatives”. They created these “derivatives” by packaging mortgages into securities and sold them as investment instruments. What the hell does that mean?

Assume you have a mortgage on your house with an interest rate of 6%. Another guy has an 8% mortgage; yet another has a 9% mortgage, etc. Put several of these together into a group totaling a million dollars.

Keep in mind, the million dollar sum of these mortgages represents the outstanding amount due from the home owners; the actual market value of the houses is much higher due to the escalating home prices.

Next, create ten investment contracts (derivatives) each worth $100,000 to match the money we are obligated to pay the banks and other lending institutions via the contract(s) we wrote. (Note: we did not actually turn over a million dollars in cash to the bank; we turned over something much less but we are on the hook for the million dollars.

We can either sell each of these contracts for more than $100,000 or less than the $100,000 (depends on how much capital we invested up front). When we sell the contract, the buyer is now indebted to us for the face $100,000 value. This, in effect, frees us from our obligation to the bank because we have that contract covered with these contracts.

Some investors will pay us more than $100,000 because they have what looks like a very safe investment returning something in the range of 7% to 9% based on the average interest rates involved in the mortgages. Compound this over a few years and you have a very nice return on your money with what looks like very little risk.

If we had put up $800,000 for the million dollar portfolio, we could sell the $100,000 contracts for $90,000 each ($900,000 total) and get our money back plus a nice profit. The buyer (speculator) would be happy because they see the $100,000 contract being worth much more in a very short period of time because of the escalating value of the underlying homes. Since they only paid $90,000 each, they are already ahead. We made $100,000 and each speculator made $10,000.

Now, remember the price escalation in housing? The houses behind the above mortgages are now worth much more than they were. That, in turn, reduces the risk on the certificates significantly which is another way of making the investment even more attractive. The contracts would now be worth potentially much more than the $100,000 face value.

Remember, these are contracts. They can be sold and re-sold for whatever price the market will pay. Thus, “the infamous ball starts rolling down the infamous hill”!

Keep in mind the bank at the end of the line actually put out the value of the contract in real cash; it went to the sellers of the houses. That is a very simple explanation of a very complex subject.

OK, assume trillions of dollars worth of these contracts have been created and sold all over the world at all kinds of varying prices. That is a lot of money! It would be nice if you, as any one of these investors, could buy insurance to cover these contracts.

Enter: Credit Default Swaps. Credit Default Swaps are simply “insurance policies”. These were sold like any other insurance policy; for a set amount of premium you will get a policy to pay off the contract should something happen!

Trillions of dollars worth of these “policies” were sold; way beyond the amount of money the insurance companies had to back them up! Think AIG. You know, if you insure your car for $25,000, it would be really nice if the insurance company had the $25,000 to pay you for your car if something happened to it.

Well, something happened to the housing market. It went NUTS! Prices kept going up! Loans were given for 125% of the value of the house; no money down; no income needed; etc. More contracts were created and sold; more “insurance policies” were sold, etc. etc.

Another culprit in this whole scheme was the rating agencies who declare certain investment instruments as AAA rated; BBB, CCC, etc. Of course, these new instruments got the highest rating.

Why? Creators of investment instruments pay the rating agencies to establish a rating. Just try to create a poor rating and see how much more business you would get from that creator! So, of course all these exotic instruments ended up with the great ratings! (Another group of people got rich).

OK, now we have thousands upon thousands of people over their heads! They cannot keep up with the mortgage! They stop spending! They cannot buy cars, clothes, appliances, TV’s, etc. Stores are not selling anything so they stop ordering from the Manufacturer and Distributor. They all begin to lay off people. The people have no job so they do not spend at all and stop making payments on the houses.

The houses start getting foreclosed creating a glut of houses available for sale. Prices start dropping; construction stops on new houses; more people are out of work! Home prices drop even further.

Remember the investment instruments? With home prices dropping, suddenly the contracts are no longer worth what they were. Here come the claims from the investors and banks to collect from the insurance they bought (Credit Default Swaps). Guess what? The insurance companies (AIG, etc) do not have the money to pay the claims!

Suddenly we are in a major recession accompanied by a world wide financial crisis! The entire process keeps repeating itself and getting worse by the day.

We have had recessions before but not like this! The reasons compounding this recession are as follows:

1. Most of the people caught up in the housing bubble had little or no savings to back them up; they were in serious trouble immediately!

2. The owners of the financial contracts (derivatives) had contracts dropping in value due to the drop in housing prices and the increased risk involved.

3. The “insurance policies” were proving to be worthless because the insurers did not have enough capital to back up all the claims and potential claims!

4. The problem was all over the world!

This was a total world wide financial crisis; not just a basic recession! Remember, this started in the late 90’s and it took years to get to this point!

The Bush Administration took action with the TARP program pumping $700 BILLION DOLLARS into the system to help back up the “insurance policies” and purchase some of the financial contracts (known as toxic assets). This was repeated by several other Governments around the world.

This action was critical because banks had stopped lending and the entire worldwide financial system was ready to collapse! This action did prevent the immediate melt down of the financial system.

However, we are not out of the woods by any sense of the imagination!

Barack Obama took office right in the middle of this mess! He inherited a budget and the accompanying commitments with over a trillion dollar deficit built in it! On top of that, he had two wars to deal with and an unemployment rate escalating by the day. He also had a world full of distrust and dislike for the United States and the people in it!

To make matters even worse, we have a Republican party turning itself into the party of “NO”! What the hell kind of political system is this?

The country is teetering on the edge and the minority party has their head in the sand (I wanted to be a little more colorful but this is not the place). They are blaming the new Administration for everything and are blocking virtually any action the Administration tries to do.

Where have all the REPUBLICANS, I used to know, gone? They are being replaced by some very serious “right wing” lunatics who don’t know what the hell they are talking about most of the time!

Now what about “those people” who are being blamed for this? You know, the working people who bought houses they could not afford? The ones who created this problem!

I have never heard of such nonsense! If I was young and looking for my first house, I could have easily been caught up in this thing. If everyone I knew, who bought a house recently, had experienced gains in value of 20% to 25% (and sometimes more) a year, who wouldn’t be tempted to jump into that pool?

On top of that, here is this person willing to give me a mortgage with no money down and insufficient income to pay the payments in the long term. My rationalization would be simple; if I could last a year, the house would be worth far more than I paid for it and I could re-finance and get a better mortgage and lower payments.

Several did exactly that and stayed out of trouble! However, many got caught in this financial mess and are being wiped out! Timing was everything!

Now, here we sit! Unemployment over 10%! Foreclosures are still escalating! Balances on credit cards are high and payments are delinquent. This credit card crisis is getting worse every day!

So stop blaming “those people” and put the damn blame where it belongs! It belongs to all the mortgage brokers who made tons of money; all the people “up the line” including Wall Street who make billions; everyone got rich except “those people”!

We also have any number of banks, who put out the original money, stuck with these toxic assets (contracts). No wonder they are not lending any money! Just look at the number of banks failing every month and now you know why.

We also need to give the Administration some time to fix these problems. It will not be easy and it will not be quick! Remember the concept of "momentum"? Much of what is going on today, started a long time ago!

Any politician you voted for who is not trying to help fix the problem, is part of the problem! (I sound like Ronald Reagan but in a different context). You need to write those politicians a letter and tell them they are going to get fired if they don’t stop saying NO and start making some sensible suggestions on how to fix the problem! (Tax Cuts are not the solution! See the page on "Taxes").

The Clinton Administration owns part of this problem; It was during their Administration, the Glass-Steagall Act was reformed. However, the primary force behind this change was the Chairman of the Senate Banking Committee (Phil Gramm, R-Texas).

The Glass-Steagall Act established the Federal Deposit Insurance Corporation and included many banking reforms. Many of these reforms were designed to control speculation. Others set strict limits on banks regarding what types of investments they could make and the levels of reserves needed to protect their depositors. Good thing they did not get rid of the FDIC (Federal Deposit Insurance Corporation).

This is a very complex problem the Administration is trying to deal with. There are no “bread crumbs” to follow.

If I set your house on fire and then I stood on the curb telling you all the things you should and could have done to prevent the fire, I bet you would just love me! (That is exactly what the party of “NO” republicans are doing!)

My last thought for this “History Review” is to ask you to be alert to anyone trying to re-write history! There are many right wing politicians trying to do exactly that!

My questions to them are simple. “Where were they when their party was creating all these deficits? Where were they when the proper regulations and controls were repealed? Where are their answers to these many problems? The same goes to the pundits like Rush Limbaugh, Beck, Hannity, and O'Reilly.

This “holier than thou” sniping is not unique to Republicans; the other side does the same thing whenever they get a chance. They just happen to have gotten stuck with the worst mess since the great Depression!

We need to throw them all out every other election! Empty the Senate and the House of Representatives and start over! Eventually we will get term limits and solve many of the partisan problems that stop us from getting the job done.

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