It's amazing that Standard & Poor's downgrade of U.S. debt from AAA to AA+ -- ranking us on a par with Belgium -- didn't happen years earlier.
If the United States was a public company, the credit agencies would have declared a "no-buy or sell" stipulation because of massive federal spending and borrowing over the past decade -- and the failure to control it by either the Democrats or Republicans.
Americans are rightly frustrated and are justifiably trying to pressure our president and Congress into enacting significant fiscal discipline and reform. However, it is instructive to reflect on what got us to where we are today so we won't repeat those mistakes.
During my service in Congress from 1995 through 2002, I was among those warning that mortgage giants Fannie Mae and Freddie Mac posed a huge systemic risk. Yet Wall Street and the credit agencies ignored such warnings because of the huge profits the investment and commercial banks were making and the fees the credit agencies were raking in from the banks.
After four years of massive home building and home price appreciation, the real estate market slowed in 2005 and then gradually began to implode. When the U.S. housing sector collapsed, it brought down other pillars holding up our financial system. What was a mild U.S. recession evolved into a global recession in 2008.
S&P had Fannie Mae and Freddie Mac both tagged with a AAA rating when they went down. The systemic housing problem aggravated by these two government entities is now widely acknowledged.
It was particularly shameful that leading Democrats repeatedly claimed that both Fannie and Freddie were sound and not in trouble-- right up into the summer of 2008. And Republicans knew better but didn't force the issue because of pressure from the commercial banks and housing interests. But by September, the government had to place both institutions into receivership and the Treasury Department committed up to $400 billion to ensure their ongoing solvency.
And let's not forget the excessive monetary accommodation by the Federal Reserve and some other central banks around the world, which distorted the global credit market and fueled the recession.
Now what happens? The president is developing a housing plan that, in the words of The Wall Street Journal, "would keep the feds deeply involved in mortgage markets, with subsidies and loan guarantees, perhaps even preserving Fannie Mae and Freddie Mac. The newspaper notes "this contradicts the Treasury's February white paper recommending a much smaller government role for housing without Fan and Fred."
What can be done in the short term? A former chief economist for the Labor Department, Diane Furchtgott-Roth, says the president could "make things a lot easier on employers and on hiring" by telling his Cabinet members to stop making new rules that crimp business. It would take less than an hour's worth of phone calls from the president. The first call should be to his Environmental Protection Agency director, asking her to hold off on expensive and stifling new ozone and clean air rules, perhaps until the unemployment rate drops to, say, 7 percent.
A final thought. Let's tear down some houses. Atlanta Journal-Constitution columnist Kyle Wingfield notes "hundreds of thousands of foreclosed houses are already destroying wealth by bringing down the value of other homes. And the longer they sit empty, the more likely they'll become uninhabitable anyway because of mold or other conditions. The feds own about 248,000 foreclosed homes. They should follow the example of some commercial banks and raze a portion of them." That would create jobs and help curb falling home values in some states.
Whether you agree with the S&P rating or not, the president and Congress must still make significant reductions in spending in coming years -- and that includes reforming and saving Medicare and Social Security.
J.C. Watts (JCWatts01@jcwatts.com) is chairman of J.C. Watts Companies, a business consulting group. He is former chairman of the Republican Conference of the U.S. House, where he served as an Oklahoma representative from 1995 to 2002. He writes twice monthly for the Review-Journal.