Working toward recovery.

• Author: Arnn, Larry P.
• Position: American Thought - Essay

RECENT EVENTS in politics and economics have occurred that touch upon the meaning of our country and how it shall be governed in the future. These events are, as Pres. Abraham Lincoln said of the results of the Civil War, "fundamental and astounding." They bring us another step away from the principles and institutions that have made our country both good and great.

It is time now for recovery--economic and political. The two are related, but I mainly am concerned with political recovery, which, in the end, will determine economic policy for many years. The goal of that recovery is simple to state: we must recover the art of constitutional government. The means also are simple to state: we must begin by studying that art because we have lost sight of it, and so its beauty is obscure to us today. If we can but see it again, its beauty will call to us as it ever has.

One of the worst financial crises in American history broke into public view in the first 10 days of September 2008. Several of the oldest and largest financial institutions in the world were wiped out, almost without warning, all of them highly profitable until the very eve of their demise. The government rescued the biggest insurance company in the world. Fannie Mae and Freddie Mac, two quasi-public corporations that invest in about half the mortgages in the U.S., also were rescued. For several days, the regular system of credit transfers that makes commerce possible virtually was frozen. The stock market lost upwards of 50% of its value. More recently, the financial crisis has abated, at least partially, thanks, in part, to vigorous steps to combat it by the Federal Reserve and the Treasury. Now recession is upon us, and it is likely to be sharp and may be prolonged.

On Sept. 7, the Treasury Department announced its $200,000,000 bailout of Fannie Mae and Freddie Mac. For years, The Wall Street Journal and others had been warning that there was trouble coming from those agencies. Sen. John McCain of Arizona (soon to be the Republican nominee for president) and others in Congress and in the Bush Administration had given the same warnings and moved to limit the risk. These efforts were unsuccessful because of the political protection, mostly from the left in Congress, that Fannie and Freddie enjoyed. They received this favored treatment for several reasons, one being that supporting home ownership is popular.

The weekend following the bailout of Fannie and Freddie was another busy one. This time, Lehman Brothers, an old investment bank, was in trouble. However, on this occasion, in the main, the government decided to let it fail. On...