When the Cash for Clunkers plan was first announced, it appeared to be a flawed plan right from the start. There were some obvious problems with the scheme to get people into more politically correct green friendly cars. With the plan only a few days into operation, the plan has successfully seduced so many more people to trade in there bigger, safer cars to snag their share of taxpayer or Chinese money that the initial billion dollars has already swirled down the drain. The government is busy patting itself on the back and proclaiming the program a total success. But is it?

According to a recent Rasmussen poll, 54% of the voting public was against the plan while 35% favored it. Among those with a little more financial interest, 62% of investors thought it should not be done... and an even 50% of all respondents felt that if they were going to run a program like this, it should be restricted to American made cars. However, like so many programs coming out of our nations' capitol... bailouts, health care and all sorts of things we haven't even been told about, the desires of the people... as in “We the People”... have been ignored in favor of elitist programs and schemes to involve the government in more areas of our lives.

Let's look at what really took place in our country. Thousands of buyers have happily driven away from lots in their shiny new or late model cars, with salesmen and women tallying their skyrocketing commissions and dealers themselves hoping they were going to see the promised money. The scenario fits perfectly the thinking of the current administration... transferring dollars to supposedly disadvantaged or favored and adding burdens to evil business owners.

Several dynamics were at work in each transaction... let's look at them.

The most obvious action was people who may have been thinking of replacing their current mode of transportation for a new one saw the incentive of having their fellow citizens chip in to help pay for their car. Often, these were people who could already afford a car and perhaps were planning to buy one in the next year or two. This program just compressed the process. I guess it goes back to the definition of fairness promoted by many in our government for many years... that someone else pays for my benefit. It's human nature... and not the nicest side of it.

However the they are not home free with no down side. In many cases, people have traded in a functioning automobile that carried no payments for another, probably better car, with significant payments. In other cases, some who could not quite swing the deal for the car found a way, with the incentive, to squeeze it into their budget. At a time when people are trying to cut down on their debts, these buyers have been convinced to join the federal government in increasing their monthly expenses in spite of increasingly insecure employment situations. We saw what happened when easy terms and low interest rates drew more and more people into the housing market who should not have been there... to the detriment of the themselves, lenders and our country in general. One has to wonder if this is just a repeat of a foolish strategy that may drive us into even more negative circumstances.

The salesmen are loving the increase in sales at car lots that have been devoid of customers for months. Customers have been waiting in line just to talk to one of these purveys of economical transportation. Assuredly, they will see some massive checks, but at what cost? Customers may have bought their new car next month, or a few months down the road, even into the next year. So we see a spike in sales this week at the cost of many future sales that would have given them a steady income over the months to come.

The dealers are seeing cars roll off their lots in, sometimes, record numbers. They have been told to sell the car, fill out the 1040 type forms, and wait for their payments... if they are approved. Already reports are coming in that submissions are being rejected... meaning the dealer is not getting the money. With hundreds of thousands of cars on the streets through this program combined with the efficiency and effectiveness of the government in getting payments out the door... this could conceivably be responsible for closing more dealers than the auto companies themselves as, essentially, the dealers have to pay off new cars coming out of their floor plan, pay commissions to salesmen and cover a variety of costs of doing business. The more successful they are, the more they are depending on the government to keep its word in a timely manner.

The cars themselves show the desire of the administration to destroy anything they just don't like. They're not all junkers... some are decent transportation for someone without a lot of money, yet, but terms of the agreement, they must be destroyed withing a few days... long before any payments will be received from our Big Brother in Washington. They cannot even be sent to junk yards for salvage, but are destined to be crushed and melted down. So strong is their desire to remove these politically incorrect vehicles from the streets, our “benefactors” don't have any concern for the less financially well off they claim to want to help by shrinking the supply of inexpensive vehicles.

The administration, and even some Republicans who should know better, are touting the plan as a massive success, to the point of looking for an additional two billion dollars from the American people beyond the initial one billion allocated to the plan. All one can do is only look back at one of the gravely voiced Everett Dirksen's favorite quotes, “A billion here, a billion there, and pretty soon you're talking about real money.” Unfortunately, the damage goes far beyond the dollars down the drain.

In 1966, while running for Governor in California, Ronald Reagan's formulated what has come to be known as the Eleventh Commandment: "Thou shalt not speak ill of any fellow Republican." This was in response to the trash talk about conservative 1964 presidential candidate Barry Goldwater by so-called moderate Republicans. In general is was a pretty useful and workable rule at the time.

However today it seems to only work in one direction as we have seen in the uncivil treatment received by Ron Paul and others at the conservative/libertarian end of the spectrum. While conservatives have gotten used to the being ostracized and having lies and half truths told about them, the more moderate members of the party seem to have much thinner skin.

We are told we should not be criticizing Republicans who are throwing conservative principles under the bus as the country plunges downward in an economic tailspin. While party members are squelched when bringing this up, polls show more anger among conservatives at the Republicans than Democrats. This should be cause for concern by those counting on this voting block.

The practice of catering to incumbents, despite a lack of adherence to generally accepted, smaller, less intrusive government thinking has led the party to silently take the poison pill of semi-Democrat influence in the leadership positions. Yet no one is supposed to speak up.

We saw this in action when President Bush supported Pennsylvania Senator Arlen Specter during his last primary fight against a conservative Pat Toomey. It was explained that we are better off with a “moderate” Republican who can win than with a real Republican who may not. While credit must be given for Senator Specter's support during the Clarence Thomas hearings, it could be argued that over the course his career, he has done as much damage to our country as many liberals in the Senate.

Part of the problem comes from the uneasy alliance between many of the professionals for whom the political game is a vocation devoid principled involvement and many in the grassroots who are motivated by causes and issues the other half can not comprehend. The “values voters”, as they are sometimes called, have this nasty habit of wanting candidates to stand for something other than just wearing the right jersey when trotting out onto the playing field.

This is an ongoing battle in which the professionals expect the values voters to stick with and work for the Republican Party as it is the only one that even gives lip service to their issues. Conservative candidates are labeled as “extreme” which really means they are more passionate some issue than the poll driven “moderates”. It means, also, that by invoking the eleventh commandment, the true believers are forbidden to point out the squishiness and wayward behavior of the traditional party leadership and office holders.

The last two national election cycles have shown that the public is catching on to this Democrat-lite in Republican clothing practice. Yet many of the political class continue to tell us that we should not stand so strongly on principle and be a little more amenable to the ideas of the left. They think this is where the people are going and the party must adapt.

There is only one word to describe this thinking: Wrong! It means that we who believe in values such as life, personal responsibility and the like need to be more vocal. We need to hold leaders to their promises and, if they don't perform, replace them! It's time to remember that voting for the lesser of two evils is still voting for evil. We can no longer accept being used and abused by political leaders who covet our votes but not our input.

Some will say that life would be even worse with people who don't even give the time of day to pro-life activists, second amendment defenders or property rights advocates. I would ask them, how much worse could it be than the situation we have now with an almost non-functional minority in both houses in Washington? The liberal/progressive left is poised to run roughshod over any semblance of common sense. Yet we are being told by many, that politically, we need to do more of the same that put us in this position.

It's time for those of us who value the promise of America and the values on which it was founded to reject the efforts of those who would silence us. It's time to move forward on what we know to be right rather than what we are told is expedient. It's time to consider what Charles Stanley's grandfather taught him, “obey God and leave all the consequences to Him.” We've tried everything else, now it's time we use right and wrong as our standard of involvement and support rather than practical expediency.

The initial Paulson/Bernanke/Bush, bailout plan was to get the toxic “assets” off lenders books so they could begin lending again. They came to the conclusion that accounting rules and lack of liquid assets had caused the credit market to “seize up” as they described it... much like your car's engine would do if deprived of sufficient lubrication. That was the original plan, but it quickly changed to infusing billions of dollars into ailing financial institutions, trusting the management to use it in ways to actually help the economy. We've all seen how well that worked.

The accounting rule most reviled by the banks was the “mark to market” rule which required them to carry assets on their books at values they could reasonably expect to sell them for on the open market. That never seemed to be too unreasonable a procedure. That alternative would be keeping values on the books that were greatly inflated beyond any thing they could actually be sold for. For example, why should a five million dollar building be shown on the books for ten million dollars when no one could realistically be expected to buy it at that price? In most other contexts, that would come pretty close to something called fraud. Of course write downs like had a negative impact on the corporate statements. It was, however, a more accurate picture than retaining the higher value and hoping it would, one day, return.

The other rule hurting banks involved reserve requirements for non-performing loans. When a loan, whether a car payment or mortgage is paid on time every one is happy. When the borrower stops paying in timely manner and slips further and further in arrears, the loan is listed as non-performing and the bank needs to keep reserves to cover the situation. This is why lenders will sometimes give substantial discounts to buyers who will take such properties off their books. Considering the costs involved in foreclosures and the release of reserves for other uses, these transactions often turn out to be a win for every one involved. The bank gets a toxic “asset” off the books, the buyer gets a good deal and the borrower is relieved of a debt he can't pay.

Some are quick to lay this situation completely on the irresponsibility of the home owner, assuming they lied on the application forms and did not pay attention when the adjustment feature of the loan was discussed. There is much truth to this argument, however this does not tell the whole story. Larger economic factors also came into play for many... such as jobs lost to overseas or imported workers or a general downturn in economic activity.

As an example, construction workers were badly hit by this double whammy. First many found formerly high paying jobs going to lower priced workers coming in from our southern border... both legal and illegal. Locally I never could get the local home builders representative to go on record that there were no illegal aliens working on job sites. I was referred to with a variety of terms, few complementary, but never was I given the answer I asked for. The workers plight was then compounded by the drop off in home construction.

Often borrowers would be presented a loan package with low introductory interest rates that came about by Federal Reserve market manipulation with Fannie Mae and Freddie Mac adding encouragement. It was explained to them that loans were easy to get and there was no reason to pay the higher fixed interest rates. Some were even offered rates that resulted in negative amortization – that is, the payments did not even cover the interest being charged and at then end of each of the first several years, they owed more than they did at the beginning. But then who cared, real estate was guaranteed to go up, wasn't it? They were promised that several years down the road, if they kept up the payments, they could easily refinance to another low rate. The lenders were not lying to them. Under the old rules, this was true. However, as more loans went into default, the accounting rules and federal financial regulations mentioned above began putting lenders into a bind and the rules of the lending game changed.

Even for those who paid on time, refinancing was no longer an option unless they were gold plated and had a stratospheric FICO score. The pendulum had swung back in the direction of sanity, but too far to keep home sales at anywhere near normal levels. Lenders were tasting the bitter fruit of their lending excesses inspired by the low interest, free flowing money supply, government encouragement and intimidation (read regulation meant to open home ownership to people who could not afford it) combined with a bit of their own greed. The whole situation was compounded by the practice of selling off the loans almost before the ink was dry on the closing forms. This appears to be a critical but often missed link in the chain of failure. It meant that for all the hoops the loan underwriters made the borrowers jump through, the lender had no responsibility for collecting the loan... and they really didn't care. Broker commissions were paid, profits were taken and the risk was passed on to other unsuspecting banks or investors.

So now, by injecting new cash into a banking and economic system, our government is expecting restore the credit market and pump up real estate prices. Let's think about this a little. In spite of the lessons many of us have learned personally, we are now expected to set the acquired wisdom aside and blindly resume borrowing and spending. Washington is setting the example for us. Ironically, the fact that we have to pay for their example may preclude us from following it ourselves. The fact is that, with the economic downturn, many are in trouble personally precisely because they followed this path to financial disaster. Washington wants the banks to loan out the dollars so we can resume our rush to financial destruction. How kind of them.

As far as real estate prices, many have been saying for years that they are well above any relationship to reality and could not be sustained. Homes got to their astronomical values as a result of the Federal Reserves free flowing money and artificially low interest rates. This made it easier for more and more people to enter the home buying market. Anyone with a rudimentary understanding of economics, which apparently excludes many inside the beltway, can tell you that increased demand without increased supply will drive prices up, up and away. What we are seeing now is a reduction in demand because many cannot get the money to buy a home. What happens next, and again, it only takes an elementary understanding of economics to comprehend, is that prices will come down as more homes are available than are needed to meet the demand.

So our Treasury Secretary and Federal Reserve Chairman, along with a host of congressional types and White House staffers are feverously working to find a way of defying the financial gravity acting on home prices with some sort of scheme to retain the inflated prices in spite of a diminished market. Despite the obvious political implications of facing a public whose home values have dropped in recent years, there is the consideration of retaining bank assets at values that keep shareholders happy and CEOs in their jobs.

It appears that in spite of the deflationary pressures on the housing market, home owners are expected to eat the losses, but for all their involvement in its creation, banks want to limit theirs. Writing down loans to actual values, will, long term, establish an equilibrium that will permit us all to move forward. It is not a good plan, but the President is calling for shared responsibility and sacrifice, maybe it's the best plan we can come up with. If the banks foreclose, all they will get is the reduced value anyway, and then, only a portion of it. The borrower should not have taken the loan in some cases... but then the banks should not have made the loans in many of those same cases.

It would be best for everyone to get together and work out agreements based on their situations – without government involvement! They helped get us into the mess, it would be foolish of us to expect their wisdom to get us out.

As far as getting back to borrowing and buying, perhaps we should put that on hold for a while. That's what got us here. We should be thankful it wasn't worse... then not go out and do it again.