Creature From Jekyll Island by G. Edward

SOCIALISM TAKES ROOT IN AMERICA

It all began with a concept. The concept took root in America largely as a result of the Great Depression of the 1930s. American politicians were impressed at how radical Marxists were able to attract popular support by blaming the capitalist system for the country's woes and by promising a socialist Utopia. They admired and feared these radicals; admired them for their skill at mass psychology; feared them lest they become so popular as to win a plurality at the ballot box. It was not long before many political figures began to mimic the soap-box orators, and the voters enthusiastically put them into office.

While the extreme and violent aspects of Communism gener-

ally were rejected, the more genteel theories of socialism became Popular among the educated elite. It was they who would naturally become the leaders in an American socialist system. Someone had m

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to look after the masses and tell them what to do for their own good, and many with college degrees and those with great wealth became enamored by the thought of playing that role. And so, the concept became widely accepted at all levels of American life—the

"downtrodden masses" as well as the educated elite—that it was desirable for the government to take care of its citizens and to protect them in their economic affairs.

And so, when more than 1900 S&Ls went belly-up in the Great Depression, Herbert Hoover—and a most willing Congress—

created the Federal Home Loan Bank Board to protect depositors in the future. It began to issue charters to institutions that would submit to its regulations, and the public was led to believe that government regulators would be more wise, prudent, and honest than private managers. A federal charter became a kind of government seal of approval. The public, at last, was being protected.

Hoover was succeeded by FDR in the White House who

became the epitome of the new breed. Earlier in his political career, he had been the paragon of free enterprise and individualism. He spoke out against big government and for the free market, but in mid life he reset his sail to catch the shifting political wind. He went down in history as a pioneer of socialism in America.

It was FDR who took the next step toward government

paternalism in the S&L industry—as well as the banking industry—by establishing the Federal Deposit Insurance Corporation (FDIC) and the Federal Saving and Loan Insurance Corporation (FSLIC). From that point forward, neither the public nor the managers of the thrifts needed to worry about losses. Everything would be reimbursed by the government.

A HOUSE ON EVERY LOT

At about the same time, loans on private homes became

subsidized through the Federal Housing Authority (FHA) which allowed S&Ls to make loans at rates lower than would have been possible without the subsidy. This was to make it easier for everyone to realize the dream of having their own home. While the Marxists were promising a chicken in every pot, the New Dealers were winning elections by pushing for a house on every lot.

In the beginning, many people were able to purchase a home who, otherwise, might not have been able to do so or who would have had to wait longer to accumulate a higher down payment. On HOME, SWEET LOAN

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the ether hand, the FHA-induced easy credit began to push up the price of houses for the middle class, and that quickly offset any real advantage of the subsidy. The voters, however, were not perceptive enough to understand this canceling effect and continued to vote for politicians who promised to expand the system.

The next step was for the Federal Reserve Board to require banks to offer interest rates lower than those offered by S&Ls. The r e s u l t was that funds moved from the banks into the S&Ls and became abundantly available for home loans. This was a deliberate national policy to favor the home industry at the expense of other industries that were competing for the same investment dollars. It may not have been good for the economy as a whole but it was good politics.

ABANDONMENT OF THE FREE MARKET

These measures effectively removed real estate loans from the free market and placed them into the political arena, where they have remained ever since. The damage to the public as a result of this intervention would be delayed a long time in coming, but when it came, it would be cataclysmic.