ImageThe great thing about really big problems is that they often take so long to metastasize that it can be difficult to recall how they came about. Big problems can also resemble musical chairs. The guy left standing when the music stops might have had little to do with the problem, but the spotlight is on him, and the public can easily be persuaded that the whole mess is his doing.

Two big problems at the national level that have emerged in recent years have been Islamic-sponsored terrorism - manifested specifically in attacks on our own soil - and the sub-prime mortgage (and derivative banking) crisis currently on everyone's mind. Islamic terrorism has origins in the 1979 Islamic Fundamentalism takeover of Iran led by the Ayatollah Ruhollah Khomeini. The sympathetic Carter Administration declined to support the Shah, thus allowing the Khomeini revolution to proceed without American intervention. Champagne corks popped in the Oval Office when the Shah fell and fled the country, but the euphoria was short-lived.

It soon turned out that the Ayatollah's barbaric government was far worse than the Shah's regime - however repressive the latter might have seemed. Any brownie points Mr. Carter thought he had racked up amounted to nothing, as the Ayatollah inveighed against America, called us The Great Satan, and vowed to harm us. In November 1979, Iranians seized the American embassy and took seventy embassy staff hostage. The Iranian "Hostage Crisis" lasted 444 days, until all personnel were released (unharmed) on January 20, 1981 - the day of Ronald Reagan's inauguration. The crisis made President Carter look powerless and incompetent, arguably destroyed his presidency, and brought about Mr. Reagan's election.

The "Reagan Decade" of the 1980s saw several terrorist incidents, including: bombing in 1983 of a U. S. Marine barracks in Lebanon that killed 241 marines; the 1985 hijacking of the cruise liner Achille Lauro, during which Leon Klinghoffer, an elderly, wheelchair-bound New Yorker, was killed and thrown overboard; and the 1988 bomb-destruction of a Pan American World Airways Boeing 747, over Lockerbie, Scotland, killing 259 people on board and 11 on the ground. At least 13 separate terrorist incidents occurred during the 1980s - all on foreign soil.

Islamic terrorism continued into the 1990s - the bombing of the World Trade Center in February 1993 marking the first major attack on American soil since World War II. This caused some alarm in the Clinton Administration, but the April 1993 siege of the Branch Davidian compound in Waco, Texas (resulting in 75 deaths, including 25 children) diverted government and media attention away from external terrorism. (False allegations of child-abuse gave Attorney General Janet Reno a pretext for the Waco siege. FBI teargas ignited buildings, causing the deaths.)

The 1995 Oklahoma City bombing further fixed attention on "white supremacy" terrorism as a far greater threat to the country than external terrorism. Two white Americans (Timothy McVeigh and Terry Nichols) were convicted of the crime, but questions linger about whether they were the sole participants in the destruction of the Murrah Federal Building, which killed 168 and injured approximately 800. (McVeigh was executed; Nichols received life imprisonment.)

During the ‘90s, the Clinton Administration also made much ado about the burning of southern black churches. It was widely presumed that the fires were racially motivated, until it was discovered that a disgruntled black former church member had set them.

Thus, President Bill Clinton skated through the 1990s without addressing external terrorism as a serious national threat. Mansoor Liaz, a member of the Council on Foreign Relations, documents [1] how Mr. Clinton and National Security Advisor Sandy Berger declined opportunities to have Osama Bin Laden, plus data on his terrorism network, handed over by the Sudan government.

Of course, Islamic terrorism did become our primary security threat when teams of terrorist hijackers flew two fully loaded airliners into the two World Trade Center Towers and one plane into the Pentagon, on September 11, 2001. (A fourth airliner crashed into a field in Pennsylvania, killing all on board, when passengers apparently thwarted the hijacking whose mission was - experts believe - either the U. S. Capitol building or the White House.) The death toll for this new Day of Infamy was nearly 3,000, plus unknown numbers of injured.

Who neglected to notice the rise of Islamic terrorism? Some Democrats - particularly the lunatic fringe afflicted with Bush Derangement Syndrome - have tried to pin this rap on George W. Bush, but it won't stick. Mr. Bush was in office only eight months before the terrorists struck. Others finger Ronald Reagan, who reacted hardly at all to the various terrorist incidents on his watch. They have a point. Conversely, the Soviet Union was still an active adversary during the 1980s. In fairness, one has to admit that Mr. Reagan was justifiably occupied with containing the resurgent Russkies in Afghanistan, Europe and Central America. Next to the nuclear-armed Soviet Union, a gaggle of bomb-throwers wearing bed-sheets probably seemed like small beer.

The Clinton Administration telegraphed its own perceived culpability on this question two years after the 9-11 attacks, when former National Security Advisor Sandy Berger took documents from the National Archives - apparently secreting them in his clothing. Investigators theorized that the documents - some of which Mr. Berger destroyed - might have detailed the missed opportunities to capture Bin Laden, plus other data that cast Mr. Clinton in a bad light. In 2005, Mr. Berger was convicted, fined and sentenced to community service for security violations involving the documents. His bizarre actions might have removed some of the evidence showing Mr. Clinton fumbling the chance to get Bin Laden, but he couldn't erase the trail entirely.

It's less clear where the finger points in the sub-prime mortgage crisis and the resulting collapse of quasi-government mortgage houses Freddie Mac and Fannie Mae. For one thing, the drama is still unfolding, like a slow-motion explosion in the movies. It's as though the 9-11 attacks didn't happen in a single day, but stretched out over a week, months or years. Also, we're in the final stages of a particularly acrimonious presidential campaign, where both sides are scratching and clawing for every possible advantage. The likelihood of historical truth about a complex event emerging in such an environment is close to zero. Still another reason for not seeing where the finger points is that there are many fingers, and more than enough blame to go around.

Some things are clear, however, although not necessarily widely publicized. The Mainstream Media like to declaim that the crisis was caused by "unbridled greed" or "capitalism run amok". But the fact is that its true cause was political pressure on banks and savings and loan associations to promote increased home-ownership.

This pressure caused banks to lend to people who - under normal business protocol - could not have qualified for mortgages. They were (in banking lingo) "high risk borrowers". But pols trolling for votes saw only racism or "redlining" at work. In the 1990s, banks were pressed to make loans that would never have been let in the late 1960s, when my wife and I were struggling to buy our first home. Both the Clinton and Bush II Administrations eagerly joined the campaign to "get more Americans into home-ownership".

For a time this strategy looked successful, as great numbers of newly qualified buyers streamed into the market and pushed home prices up. This made current owners happy. The construction industry was booming. All seemed to be well. When I was forming my retirement investment portfolio in 2003, Fannie Mae Bonds were selling at a premium because they were considered some of the safest possible investments. (After all, the government guaranteed them.)

Knowledgeable people knew the mortgage industry was headed for rough water, however. In 2005, John McCain co-sponsored legislation that would have reined in the out-of-control Freddie and Fannie, but Democrats (including Hillary Clinton, Barak Obama, Christopher Dodd, Charles Schumer and others) shouted it down. Some of the same politicians now declaiming the loudest about "greed in high places" helped cause the mortgage meltdown.

What caused the expanded crisis as we see it? It's something like filling a balloon with water. It expands prodigiously, taking on amazing amounts of water. Finally, it can hold no more and simply bursts (making a real mess, if you're standing nearby). That's a picture of what happened to the banks. When the overheated housing market cooled off and houses stopped inflating in value, some "high risk" borrowers - finding that they owed more than their houses' value - found it prudent to walk away. Other borrowers couldn't make their payments for various reasons. Banks finally had so many "non-performing" loans on their books that they couldn't take on any more. The balloon burst.

If this wasn't bad enough, investment houses had bought securities that bundled many of those loans together. As the loans sank into non-performing status, their value plummeted, endangering the fiscal soundness of the securities' buyers. Investors (like yours truly) stopped buying those securities, and big investment houses couldn't move the paper they held. Bad loans started clogging the investment system like toxic waste.

With banks and investment houses in precarious positions, the nation's commercial system began to break down. Like many Americans, you might wonder how this could be. Most of us don't realize that the financial "sub-floor" of America's commerce is daily overnight borrowing and lending of hundreds of billions of dollars. The nation's business could not function without this invisible, free-flowing transfer of capital.

This short-term borrowing and lending cannot proceed without complete confidence that institutions will repay borrowed monies, as promised. Loss of that confidence is the looming monster that now threatens our economy in the most fundamental way. Within recent weeks, as some banks began to stagger from the weight of their bad mortgages and mortgage-securities, all banks began to look askance at their competitors, wondering who might fail next, before they could pay back their overnight loans. This widespread doubt has slowed overnight lending.

Unless the "toxic waste" of bad mortgage loans is cleaned out of our financial and securities system, there is a very real risk of a complete collapse of the American economy, not unlike the Great Depression in length and severity. Mr. Bush is correct in saying that we are in a very precarious position. The toxic-waste cleanup must begin immediately.

Not surprisingly, the effort to do this, sponsored and promoted by Mr. Bush, is controversial. In an election year, it has become a political football. As we traveled south this week to visit family, I heard people in restaurants talking about the situation. A recurring theme in their discussions was grousing about using tax money to bail out "rich Wall Street bankers". Politicians at high levels are echoing this complaint, but it reveals a dangerous miscomprehension of the situation.

I titled this piece as I did because Americans need to understand that the real culprits in this crisis can be seen only if every citizen holds a mirror in front of his face. This crisis was not done to us - we did it to ourselves. Our elected politicians intervened in the mortgage business for political purposes. The goal of increasing home-ownership via political action is like a goal of putting everyone in a new American-made car or putting more white guys onto NFL teams. It's silly and completely unworkable. Politicians have no understanding of these things. We don't either.

That being said, the problem of cleaning the bad paper out of the mortgage industry and restoring confidence to banking must be addressed without delay. The mess was made; now it must be cleaned up. The stated price tag of $700 billion is the "up front" cost that will buy up the non-performing mortgages. But these devalued loans won't necessarily be worthless. Each mortgage attaches to a property. Once foreclosed and resold, each will represent some value for the government. Ultimately, order will be restored at a price well below $700 billion, provided the effort is not larded-up with unnecessary, social-engineering agenda items. Much of the current Congressional fighting is over the latter.

For the longer term, Americans can avoid future fiascoes like this one if we can learn to avoid being fleeced by seductive ideas like "easier home-ownership." Mortgage lenders were never in the business of denying people the chance to buy a home. They knew their business. Politicians had no business getting involved in it. We can see the mess they made when they did.


[1] See Mr. Liaz's article at