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Point – Counterpoint

Oct 1st, 2008 | 0

 ~    A weekly discussion of the issues by the leaders of Walton County Democratic and Republican parties. ~

“Congress considered approving the spending of up to $700 billion taxpayer dollars to cover bad mortgage debts caused by foolish banking decisions. What went wrong and how can it be prevented from happening again?”

Tim Norris, chairman
Walton County Republican Party
We can fix this.
The mess with Freddie Mac and Fannie Mae caused this problem. The Wall Street Journal has been talking about it for years. In the name of preventing ‘discrimination’, they made changes to banking rules so that people have been getting loans that shouldn’t get them. Mortgage lenders, legislators, investment bankers and others are all to blame for the crisis, which stemmed from easy credit and investors’ appetite for yield.
We’re witnessing a desperate flight to safety by investors. People are running away from financial assets and financial institutions simply because confidence has disappeared. With home prices falling, foreclosures and defaults are the root cause of the run against all types of mortgage-related bonds held by the banks. Foreclosures today are less than 3 percent. During the 1930s, they were 50 percent. Our unemployment rate today is at about 6.1 percent. Back in 1982, it was near 11 percent and for most of the 1930s, it was over 20 percent. We will get through this.
And there are constructive policy measures that can help fix the market’s problems. A new type of Resolution Trust Company could purchase underwriter assets that proliferate through the financial system and are clogging the credit and loan systems of our banks.
We clearly are in an emergency moment. But the government should opt for smart regulatory action rather than broad-based interference that could stifle the free economy. On Thursday afternoon Paulson was talking President Bush into a new RTC, the stock market soared 400 points. That’s what I call an endorsement. The taxpayers might even come out ahead if we do this.
The pessimists are now talking about the end of capitalism or a permanent decline of America. I don’t believe that for one moment. Specific regulatory reforms can get us out of this fix. And most of all, policymakers must maintain the low-tax, low-inflation, open-trade formula that has propelled this nation’s economy and produced so much prosperity for so long.

Graham Campbell-Work
chairman, Walton County
Democratic Party
One needs only look at today’s headlines to get a taste of the grim financial situation facing this great nation. The financial crisis facing Americans today is evidenced by the bankruptcy of Lehman Brothers, the merger of Merrill Lynch and Bank of America, and the federal takeover of Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac are the two biggest mortgage companies in the United States. Due to their misadventures into the sub-prime mortgage market, these two companies have been left reeling from a lack of cash. How did this crisis come about? Corporate greed and a lack of federal regulation are two of the culprits.
When President Clinton left office in 2000, regulations were in place that kept Wall Street and the financial powers that be under control. One of the many things that the current administration did to usher in our present financial crisis was to “deregulate” these areas. This philosophy was supported by Sen. John McCain. Once this deregulation took place, financial institutions decided to invest in the sub-prime loan market. At the height of the real estate boom, practically anyone could get a mortgage, regardless of credit history. Money was loosely loaned to consumers who would not normally be eligible for a mortgage loan. This lending strategy was a way of making large amounts of money due to higher interest rates and extended mortgage terms.
The sub-prime mortgage market turned out to be exactly what the name indicated – sub-prime. Borrowers in this market quickly found the adjustable rate mortgage payments they were supposedly locked into start “adjusting” faster than anyone anticipated. Home-owners were having a hard time making their house payments.  As these payments became more and more delinquent, foreclosure was inevitable. Foreclosure rates grew dramatically in the United States until they reached epidemic proportions. When this happened, the lending institutions were left holding billions of dollars in foreclosure papers in a market that had turned sour.
The current administration’s deregulatory actions have helped the financial market make its proverbial bed.  Now the government wants to use our taxpayer dollars to avoid having to sleeping in it. Personally, I do not believe that we, as taxpayers, should be responsible for the failings of a corporation, whatever its cause.
To prevent this type of financial disaster from happening again, the government must get involved on certain levels.  The federal government must be allowed to regulate the mortgage markets. Had the regulations present in the 1990s not been removed, we could have seen this crisis coming and perhaps curtailed or even prevented it.
The next president of the United States has a monumental task ahead of him. He will have to clean up from the incredible devastation caused by the inept and unethical administration of the past eight years. I pray we will elect someone that can “bailout” America from the horrors of the current administration, and not a self proclaimed ‘de-regulator’ who helped to get us here in the first place. As Harry Truman said, “If you want to live like a Republican, you’d better vote Democrat.”

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