RUTHFULLY YOURS

Beneath the Treasury building in London is a large underground bunker fortified with over 9ft. of reinforced concrete holding the Cabinet War Rooms used by Winston Churchill and his Cabinet during the Blitz and throughout the duration of World War II. It is now a museum, but in its day it was the nerve center for operations against the Axis powers and the location where Churchill spent many arduous nights and from which he made many of his wartime speeches becoming the world’s symbol of resistance to Nazi tyranny.

Now framed and on prominent display is the letter written to Churchill by FDR in his own hand in January of 1941 quoting a verse from Longfellow’s poem, “The Building of the Ship”. It reads:

Dear Churchill

Wendell Willkie will give you this — He is truly helping to keep politics out over here.

I think this verse applies to you people as it does to us:

‘Sail on, Oh Ship of State!
Sail on, Oh Union strong and great.
Humanity with all its fears
With all the hope of future years
Is hanging breathless on thy fate.’

As ever yours,

Franklin D. Roosevelt

It has been seven long years since Barack Obama scrambled into the imperial box and it is impossible to read Longfellow’s lines without thinking of how they apply to America today due not only to Obama’s tragically flawed stewardship based on his devotion to the cultural Marxism of Saul ‘Red’ Alinsky’s Rules for Radicals but also due to the strong sentimental attachment to the Islam of his youth which, disastrously for the security of our republic, still exerts a domineering influence in a nostalgic chamber of his mind.

The arrival of The Big Short in theaters a few weeks ago has reignited interest in the causes of the 2008 financial crisis. If you believe that the crisis was caused by greed and recklessness on Wall Street then you’ll like this film. Paul Krugman, writing on the op-ed page of the New York Times, liked it immensely, apparently thinking a Hollywood version of reality was fact.

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Twenty20 License

We can all agree that the financial crisis was caused by a “mortgage meltdown” mostly among subprime and other risky mortgages. What neither this film nor the greed narrative tells us, is why there were so many of these mortgages in the financial system to begin with. The answer: Sorry Dr. Krugman, it was not Wall Street.

In June 2008, just before the crisis, more than half of all US mortgages—31 million loans—were subprime or otherwise risky. Of these, 76 percent were on the books of government agencies, primarily the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. This shows, without question, that the government—a sophisticated buyer—created the demand for these deficient loans.

The remaining 24 percent of these loans were on the books of private sector entities, such as banks, investment banks, insurers, and investment funds of all kinds.

Because of their government backing, Fannie and Freddie were the dominant players in the US mortgage market, and had been for more than a quarter century. They did not make loans themselves, but acquired mortgages from banks and other lenders. These were held in their portfolios or sold off to investors with a GSE guarantee.

Late last week China confirmed that it is building its first aircraft carrier from scratch, adding to a fleet that includes a Russian-made carrier. The news cast U.S. military policy in a particularly unsettling light: While China’s naval power expands, America has deliberately reduced its presence on the seas. The Navy—after nearly $1 trillion of Defense Department cuts, in part mandated by the 2011 budget-sequestration deal between Congress and the Obama administration—is already down to 272 ships. That means the U.S. fleet is less than half its size at the close of the Reagan administration nearly 30 years ago (and down by 13 ships since 2009).

The Navy had intended to increase the fleet to 308 ships, including 12 that will replace the nation’s aging ballistic-missile submarine deterrent. But in a mid-December memo, Defense Secretary Ash Carter told the Navy to cut the number of ships it plans to build in favor of placing more-advanced technology aboard the existing fleet.

Secretary Carter’s plan implies that the deterrent effect of a constant U.S. presence in the world is less important than the Navy’s ability to fight and win wars with the advanced weapons he favors. That assumption is mistaken. We need both the ability to be present, which demands more ships than we have, and the related power to win a war if deterrence doesn’t work. Even the Navy’s now-endangered plan for 308 new ships was far below the approximately 350 combat ships needed to achieve this aim.