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RUSH: North Vernon, Indiana. Dave, welcome to the Rush Limbaugh program. It’s nice to have you here.

CALLER: Hello, Rush.

RUSH: Hi.

CALLER: Yeah, I’m a longtime listener, first-time caller, and I just… You know, I was really upset over the first bailout; and then, you know, we’re getting ready to spend another trillion dollars. One of the things that I’m really upset about is the explanation to the American people, especially as a taxpayer, and I was hoping you might be able to enlighten me a little bit. I’ve always felt like the economy, cash kind of recirculates around, and, you know, when the banks came to us and said, ‘We need, you know, almost a trillion dollars,’ I’m just sitting there asking myself, ‘Well, where did the cash go?’

RUSH: Well, that is a multipart answer. I’m just going to give you a sketch answer to the question, okay?

CALLER: Okay.

RUSH: Because there are many places that the money went, and it became sort of a Ponzi scheme put off down the road. I don’t know which came first. But it doesn’t matter, because they happened within close proximity. One of the things — and the real foundation for this goes back to the Community Redevelopment Act, the CRA, or RDA, whatever it was — that required home ownership for people who had no business owning a home, who couldn’t afford it. The word should have been RENT, but people felt it was not fair that some people were not allowed to have homes. So loans were made to people that could not pay them. Therefore, those loans are worthless. When you loan somebody the money for a house, and there’s no down payment — when you loan somebody $300,000 for a house or whatever it was, and there’s no way to pay it back — you have just given away $300,000, unsecured, with no way of getting it back.

These loans were forced on many of these banks by groups like ACORN, by a couple of former presidents, Fannie Mae and Freddie Mac. By the way, did you see Fannie Mae needs $16 billion more to stay solvent? Have you seen that today? We’ve already given these clowns, I forget what the number is, 85 or 25 million, but we have given these things: Fannie Mae and Freddie Mac — and, by the way, Fannie Mae and Freddie Mac, this is a great lesson, too. Fannie Mae and Freddie Mac are said to be ‘private sector companies.’ That was the wizardry in setting them up. But they’re not. They are government agencies. They are so-called private sector entities run by the government. It doesn’t work. They were used to line the pocketbooks of the people that worked there, just like these guys on Wall Street theoretically did.

So it’s a tangled web, but basically what you had were these unsecured mortgages in the millions, and then you had people who were flipping houses just to get money on them, never living in them. It was just an absolute mess. So the banks then tried to find a way to make these mortgages that were worthless, worth something. So they sold them. In some cases they sold them to Fannie Mae. In other cases they batched ’em, and they solid ’em to other financial institutions. Then they created insurance policies, which were also sold, or other financial products to try to give these worthless mortgages some kind of value. You hear the term ‘toxic assets.’ Remember, now, that the original purpose of the $700 billion bailout in October was to buy up these ‘toxic assets,’ not so much tie them up, but to try to establish a value for them. The value was zero. So establish a value and then auction them. Then you might have people buy them, if you assign value.

It never happened. So all of these banks stuck. Then there was Sarbanes-Oxley, mark to market, where they had to go to their balance sheets every year and say, ‘Okay, our worth is based on our activity this year, not what we expect to be coming in in the future, not based on our long-range plans, but mark to market, and right now, we’re broke! We don’t have diddly-squat because our mortgages that we were forced to end don’t have any value and neither do the insurance programs we created to give ’em value. So we got toxic assets after toxic assets.’ We’ve got poison in the financial system! When the home business, when the whole thing was going up and people thought values would never decline, some of these same people were borrowing and lending money at 30-to-one ratios.

In other words, they were borrowing or lending for one dollar they had, borrowing or lending 30 dollars. Those ratios could not be supported. Those ratios could not be maintained. So what you have here is a liquidity crisis. So they’ve been trying to pump liquidity, or cash, back into these institutions that had none because all the things they invest… Think of this. There’s a stock. You’ve got a good friend who says, ‘Folks, I got a stock for you, and it costs nothing. You can go out and buy a million dollars of nothing!’ You go do it. You can’t lose a million dollars worth of nothing. If all you’ve got is a hundred grand, buy it. Buy this stock, nothing; it won’t cost you anything. Well, you buy nothing, you have nothing, then you try to give nothing some value, and it’s impossible. Zero is zero. So that’s where it went. Meanwhile, the people that got the mortgages largely some of them are still in their houses and the people that got mortgages that can’t pay for them because their rates went up, they’re the ones being foreclosed on.

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