I have really good news for you: we lost the election, and that is really good news! This was an election we needed to lose. And if you don't believe me, wait until 2010 and 2012, and 2018 and '20, and '22, and '24, because they are going to spend 10 years recovering from this victory, not us. We just lost the election.

We just lost the election of 1928, folks. We'll come back in '32, and then we'll stick around for 20 years. President Obama is taking office really as a trustee in bankruptcy, a receiver in bankruptcy. It's exactly the role that a lawyer gets himself into when the judge gives him that lucrative appointment where he is in charge of winding up all the debts of the corporation, and he doesn't have time to launch new product lines. He doesn't have the ability to do it. All he can do really is pay the debts the corporation has incurred prior to his taking office and bankruptcy.

And let's understand the roots of the bankruptcy as we go forward. Consumer debt in the United States has risen from 50 percent of GDP in 1990 to 100 percent of GDP in 2007. So, in 1990 our gross domestic product was about $9 trillion or $10 trillion, and so we had about $4.5 trillion or $5 trillion of consumer debt – that's not business debt, that's mortgages, car loans, student loans, home equity loans, and credit card debt. It was $4.5 trillion. It's now $14 trillion in 2007.

And that explosion in consumer debt is really a heroin addiction. It really means that we were living way, way beyond what our income would permit. And what we have to do now is to get off the heroin and get off the addiction, and that's a very, very painful, long and slow process.

But we're not going to have to go cold turkey because the government is going to give us methadone in the form of these large bailouts, which will mitigate the pain. It means we'll never be at a 23 percent unemployment rate, like they were in 1933, or it means that we'll never have the 30 percent contraction of our economy, which is what happened in the Great Depression.

But methadone ultimately can't speed the process, all it can do is anesthetize it. And essentially it's going to take two to three years for us to get out from under this mountain of consumer debt that we've racked up.

Now, make no mistake about it, the impetus of that consumer debt was a liberal one. It came from the Left, not from the Right. I wasn't conscious that I was involved with it but I was. In 1996, I went to Clinton and I said, "Hey, why don't we get the home ownership rate up in the United States? Why don't we celebrate that"? It had risen from 62 million homeowners to 65 million. And I said, "Let's have a press conference celebrating that, and at the same time let's cut the rate for FHA insurance or cut the closing costs for FHA, not the rate but the closing cost."

And we sliced $100 off the cost, it was nominal, but it gave a news peg to hold a press conference crowing about the increase in home ownership. And I didn't realize it at the time, but that really began a long process of loosening and loosening and loosening the supply of credit in the United States, particularly for home ownership.

And it was a liberal ideal. The idea was that everyone should own their own home, that everybody should own their own car, that people should all have the opportunity to go to college with student loans, and not just state universities but private colleges if they could get into them academically.

And the whole impetus here was sort of expanding the amount of debt. And it began originally as an effective public policy, and then as always happens the private sector picked it up from the public sector and ran with it. And as always happens when it runs with it, it was excessive, it went into speculation, it went into a bubble, and then everything got to a point where it exploded, and it really began to collapse.

The key moment that began this process was when Fannie Mae, the organization set-up by FDR to provide liquidity in the housing market, was taken over essentially by the Democratic Party.

Fannie Mae’s job was that if you make a mortgage loan, it would buy that mortgage loan from the bank and give the bank the money for it, even if you hadn't repaid it yet, you were still making the payments. But they would telescope those payments and give you the full value of the mortgage so that you, as the bank, could then take that money and lend it to somebody else.

In the 1960s Fannie Mae spun-off and became a private agency with federal government participation. If you want to read a dire warning about what that would mean, read my wife's and my book, Outrage, that was right before this one, Fleeced, which predicts this whole thing in the chapter on Fannie Mae.

Clinton appointed a guy named Franklin Rains to head Fannie Mae. He had been the Budget Director in the Clinton administration. And Rains took over Fannie Mae and he changed the method of his compensation. No longer would he get a salary and bonuses. He would get a percentage of the total amounts of mortgages he insured. So, if you left it on the desk overnight, he'd insure it by the morning, because as far as he was concerned the more the merrier. And then so that the board of directors, which was crammed with deserving Democrats, didn't pick him up on it, he cut them in on the pie, too.

My favorite human being on earth, Jamie Gorelick, who more than any other member of the Clinton administration is responsible for 9/11, and I've explained why but I'll repeat it a little later on – she got $25 million as a personal bonus. And Jim Johnson, who was head of the VP Search Committee for Obama, got $5 million or $6 million, and Franklin Raines got $90 million over a six-year period, $90 million. He eliminated the down payment requirement and he eliminated the requirement that you have full interest rate. He permitted subsidized interest rates for Fannie Mae insurance.

And so what happened was that people would come to their mortgage lender or more likely the broker would come to them and say:

Lender: "How would you like to buy this house for $100,000."

Borrower: "Well, I don't have $100,000."

Lender: "That's okay, you just put $20,000, we'll lend you $80,000."

Borrower: "I don't have $20,000."

Lender: "That's all right, put nothing down, we'll lend you the whole $100,000."

Borrower: "How much interest to you?"

Lender: "Well, 7 percent."

Borrower: "I don't -- I can't afford 7 percent."

Lender: "That's okay, we'll give it to you at 5 percent on an adjustable rate, and then in three years if the rate goes up it'll be 7 percent."

Borrower: "Okay, but I can't afford 5 percent."

Lender: "Okay, I'll tell you what we'll do, we'll give it to you for 2 percent, and we'll lend you 3 percent interest for three years, so we'll lend you 9 percent in effect on a home that's $100,000."

So, the mortgage started at $80,000 then it became $100,000 with no money down. Now, it's $109,000 with the interest folded into it. And, of course, the broker is entitled to a small commission, and we can't pay it, so that gets folded in, too. And the lender charges 2 or 3 points, and that gets folded in, as well. And by the time you finish with this thing, it's a $125,000 monstrosity value anchoring a $100,000 house.

"But it's fine, don't worry about it, the market is going up. And while we know Mr. and Mrs. Jones can't pay that mortgage, the house probably can, because in three years the house will be worth more than $125,000. You sell it, you sell it for $135,000. The Jones pocket $10,000. The lenders get back their $125,000, and then Jones is on his way to being a member of the middle class with $10,000 in his pocket, and then he can buy an even better house. "

But the mortgage lenders realized that they were still holding pretty risky paper there. And so what they did was they chopped it up into very small pieces, tiny little pieces. And then they sprinkled in good mortgages on top, almost like parmesan cheese on top of the spaghetti. And then they mixed it all up, and they served portions to every investor on Wall Street, and the portions were 95 percent good mortgages and 5 percent turkeys. But the turkeys were like cancer cells, they took over the good mortgages. And sooner or later every bank that had this bad paper became infected, couldn't pay their debts, there was a crisis in confidence, and the spiral started.

But it went even further than that. The bank would get this paper and would say, "Hey, you know, I really want more leverage off this paper. I want to be able to lend more money and make more interest based on this paper. But the paper is so rotten, the mortgages are not that good, it's not well rated, it doesn't give me the leverage that I need."

So, they went to the insurance companies, mainly AIG, and said, "Hey, folks, would you insure this paper for me?" And AIG said, "Well, what are you going to pay me for a premium?" And they said, "Two percent." And AIG looked in the books and they said, "Hey, the default rate on mortgages in the United States is only one-half of one percent. So, if I'm making two percent and I'm paying out half, man, I'll do that every day of the week. Yes, bring them on."

They then insured this paper, and with the insurance it got a AAA rating. And with the AAA rating it meant that they could then leverage it by 2 or 3 extra points, and, as a result, they could lend even more money based on it. But AIG was insuring paper based on a history that had nothing to do with the fact that they were now being asked to insure it.

Then, when the housing market leveled off simply because of supply and demand, there was the usual overbuilding, you ended up with a situation where all of this paper went crashing down, it percolated up to all the banks that had bought these securities, it percolated out to all the insurance industries that insured those securities, and the crash happened. And that's what we're living through now.

But it's only the beginning. We're only at the early phase of this, because the only thing that has crashed so far is mortgage debt. You still have credit card debt, auto loan debt, and student loan debt behind it. And then it will double back to mortgage debt, and even the mortgages that are good, the people can afford to pay, they won't be able to pay because the value of their house is going to go down below the value of the mortgage and the bank will issue calls for that money.

So we're in a situation here which is horrific, and it's going to take years and years for it to work itself out. And, as I said, the government will cushion that blow, but it's still is going to be an enormously difficult process, probably eight quarters of zero growth and not a huge contraction, maybe half a point or a point per quarter. Maybe by the end of the whole game, the economy will have lost a trillion dollars in value, not the $4 trillion or $5 trillion that would be the equivalent of the Great Depression, but a lot.

But that's not the bad news. After this process runs its course, the only way that we can prevent it from being an agonizing and destabilizing process of 23 percent unemployment and one-third shrinkage of the global economy and global revolution almost, is by irrigating it with money, the methadone I was talking about.

Now, the federal government understands, thank God, that it needs to run a deficit during this period. It doesn't have the Herbert Hoover approach which was to balance the budget in the middle of the recession that caused all Hell to break loose. And they probably are going to run what Paul Quigman just prophesied in the New York Times, a trillion dollar deficit. The U.S. government will run the trillion dollar deficit, as will other governments throughout the world, even Germany, even the EU will get over its fear and will do that. And then you're going to have unbelievable inflation, you can't avoid it, and we'll be in a stagflation situation, where we'll have 20 percent inflation and zero percent growth.

And what we will have avoided in contraction we'll make-up by inflation, which is really contraction by another name. And that's going to happen for a period of time, but that isn't the bad news.

The bad news is that when a house is on fire, we're calling the fire department to come in and put out the blaze, and the federal government is doing a nice job of that. But on to Obama, they're not going home anytime soon. They're going to put down the hose when the embers are cooling and move right in. And, in fact, they'll evict us from the house, and say, "It's my house now, I just saved it." And because you could never pass legislation in Washington to nationalize the banking system, but we just did. That was the bailout package, and when I was on TV, screaming and hollering and yelling about the bailout package, and getting down on McCain for supinely and stupidly voting in favor of it, when voting against it probably would have won him this election. He probably would have won had he said, "I favor the Gingrich approach," which is guarantee the loans, lend the money to carry them, but don't issue the paper, don't issue the money, don't give out $750 billion, give it out as needed, not simply as a protection measure. Instead, what happened then was the Democrats came in and said, "Hey, Mr. Paulson, Mr. Bush, if you're giving all this money to your friends on Wall Street, aren't the taxpayers entitled to something?" And they said, "Oh, yes, I guess they are." And they said, "Well, let's give the taxpayers equity in these companies. After all, they're providing the money." So the taxpayers, which is to say the government, gets equity in these companies. Essentially, we have just nationalized the entire financial sector of the United States. We're in the process of nationalizing the entire insurance sector, and whether we like it or not we have just become Sweden overnight.

And Barack Obama doesn't have to lift a finger to accomplish it! Bush did it all for him. It's absolutely unbelievable. Now, this is all based on the assumption that, of course, once the fire is over, the kind Federal Government will voluntarily withdraw, and these companies will return to private management.

That’s bull. They're going to use their positions on the boards, their positions in stock, even although technically it's nonvoting stock, when somebody owns a third of your buck, they own you. They'll come back, and they'll say, "Hey, let's give loans to affirmative action, let's give loans to build-up minority businesses, let's recognize your responsibility to the greater community that has just saved you."

Never mind that those are the exact same policies that caused this mess in the first place. Never mind that those loans can't be repaid, and we're just beginning another big bubble. The rhetoric will be there and the equity equation in the eyes of the voters will be there. That's the bad news, and that is something that at this point we really have no further way of avoiding, except for one.

There is one out, and it is literally one out. I think the Democrats have stolen Alaska. I think they're about to steal Minnesota, but they can't steal Georgia. That's an election. And because you guys didn't give Saxby Chandliss 50 percent of the vote, we all have to sweat it until December 2^nd when there's a runoff. And at that point, the entire future of our free market system is at stake.

If they win that 60^th seat, if Jim Martin wins that seat and defeats Saxby Chandliss, you have 57 already, the 58^th is going to be Alaska, the 59^th is going to be Minnesota, and the 60^th would be Georgia. And it is imperative that we do everything we possibly can to win that Georgia seat.

Now, I have a fundamental proposition for all of you that is dominating my thinking about the political process, and I'd like to share it with you. Conservatism is too important to leave to the idiots who run the Republican Party!

I am a conservative, but I sure as Hell am not a Republican. I hate both parties equally. And as far as I'm concerned, they are the people that ran the conservative movement into the ground. They took it from Ronald Reagan, adulterated it a little bit with Bush Sr., adulterated it big time with Bush Jr., adulterated it further when McCain voted for the socialist bailout package. And now they want us to have faith in them to restore conservative government.

Now, third parties are ridiculous. You can't do that, that's nonsense, but what you can do is to take matters into your own hands through the independent expenditure law, and just go out and create your own political reality.

And I got into doing that about three or four weeks ago, or three or four weeks before the election, when I was appalled that John McCain would not run ads against Reverend Wright. He just said, "No, I'm not going to do it. I'll fight this election with my left hand, I'll keep one hand tied behind my back." I was amazed. And then he went further, and when the North Carolina Republican Party tried, he rebuked them for doing it.

Scott Wheeler is the head of a group called the National Republican Trust at GOPtrust.com. And he came to me, and he said, "I'll run a Reverend Wright ad." And I said, "You will?" And he said, "Absolutely, there's only one slight problem, I'm broke, I've got no money." And I said, "I'll take care of that, I'll get on Fox News every five minutes, and I'll push the GOPtrust.com, and I'll get you money as long as you raise it against Reverend Wright." And with a little help from Chris Ruddy at Newsmax, we collected $10 million and we spent every dime of it on this ad against Reverend Wright, showing Reverend Wright on the air.

Did it make any difference? You bet it did. In the polling, Obama's vote share on Friday was at 49.6, and then the Democrats came home, that is an inevitable process, where the downscale voters suddenly wake up and say, "Hey, there's an election, and I guess I got to vote." And they basically are Democrats, and they begin to fall in line for the Democratic Party.

And Obama’s vote share in all the polling rose-up to about 52 on the day before election day, but the big question then was where would the undecided go? Gallup had McCain down by 11. CBS had McCain down by 13. Only Scott Rasmussen had it right, he had McCain down by 5.5. I think as a result of that Reverend Wright commercial, all of the undecided vote went for McCain. And you may say that's a footnote to history, but it's not. I wouldn't be talking about Georgia today if that had not happened. We would have 62 or 63 Democrats in the United States Senate and we would have an impotence that Viagra couldn't cure. But we did manage to get the undecided vote for McCain. It was not a McGovern, Mondale, or Goldwater-style wipeout. It was a Reagan over Carter, Bush over Dukakis, Clinton over Dole, regular victory. And as a result, it brought in a lot of Democrats, but not the 13 or 14 new Democrats that many of us, or that I was scared to death of. Scott has told me that they are going to run ads attacking Jim Martin and saying that if you vote for him in Georgia, he's the guy running against Saxby Chambliss, the Democrat in Georgia, you are absolutely giving Barack Obama and Nancy Pelosi, and Harry Reid a total blank check to pass anything in the world they want without debate.

Ultimately, no matter how horrific the socialist implications of the Obama victory are, and no matter how horrific the tax implications are, it is not ultimately the financial problem that is going to be the big damage that Barack Obama is going to do. Because you can always undo that, you can always lower the taxes, you can always privatize that which has been nationalized. You can always sell the stock. You can always pull the ocean back, and the tide can go out again.

But what can never be fixed is what he is about to do to the healthcare system in the United States. That can never be fixed, because once you give people an entitlement of that sort, you're never going to be able politically to take it away, any more than you can even do the slightest bit of trimming the fingernails of Social Security. The same dynamic will set in. It's very simple, how can you expand healthcare to 47 million new people without any more doctors? Without any more nurses? With fewer doctors and fewer nurses? Because when Obama says that he's going to cut your health insurance premiums, that $2,500, what he means is he's going to cut doctor pay, because that's the key ingredient in the cost of medical care.

He can talk about bureaucracy and computerized records and everything, but that's baloney, that's tiny. What it really is is making a surgeon, telling a surgeon, "No, you can only make $250,000, not $400,000." That, by the way, is Obama's effort to save them from the tax he's going to impose!

But the point is that can't expand the demand without expanding the supply. Now, normally when you do that, there's price rationing. The price goes up, only rich people can afford it, then the price drops and everybody becomes able to afford it. That's the normal workings of supply and demand. The more there's a demand that's not met by the supply, the higher medical income goes, the more people want to become doctors, the more doctors there are. The more doctors' fees go down, the more the cost goes down, the more everybody can afford it.

That's not going to happen because Obama has committed to the fundamental notion that it is immoral to ration based on price, that it is fundamentally wrong to tell somebody that because you're poor you're going to die, and because this other person is richer he or she is going to live. And that makes a lot of sense to us in our Judeo-Christian morality framework. But put it on the other foot, that means that I work to protect my family, I work to make money so my family will be okay. And there is no more fundamental thing to being okay than to get well when they're sick. And if money is totally irrelevant to that, then what's the point?

But more significantly, what this means is not a burden shared by all of us equally, it means that we're going to go back to the days of Dick Lamb, the Governor of Colorado, who spoke of the duty to die. What he said was that, "Elderly have a duty to die." 10 percent of our medical dollar is spent on people in the last six months of their life, and that's the stuff that's going to be rationed, that's the stuff that's going to happen. "No, you can't get that bypass surgery. You're an 82-year-old diabetic with high blood pressure, and you smoke to boot, we're not giving you that bypass surgery, because there's this uninsured person, perhaps an illegal immigrant, we can't consider that one way or the other under the Obama legislation, who is one of those 47 million new people we're counting, and he's going to get the bypass surgery." "You can't see an oncologist, you can't get an MRI, you can't get a cat scan." All of these can'ts will enter into the system.

Now, in your own mind, I know what you're saying, "I'll just pay for it." No, if the doctor does it, he'll lose his license. He can perform abortions until Hell freezes over. He can't do the bypass surgery if the bureaucrats won't approve it under the Obama plan.

When Obama says, "I'm going to leave your health insurance alone, it's only if you're uninsured," that's ridiculous because he's ignoring the basic fact that you can't increase medical care to 47 million new people from the 250 million that now get it with a shrinking number of doctors, and a shrinking number of nurses, and a shrinking amount of equipment because you're cutting back the fixed cost as part of lowering the cost. You can't do it. The only way you can do it is by rationing. Those 44 percent of the elderly vote who voted for Barack Obama just voted away their healthcare!

Now, ultimately the big concern I have about Obama's fiscal policy is the tax increases that he's likely to impose. If you go back and you look at the history of the Great Depression, the stock market crash did not cause the Great Depression. It started it, but 1930 was pretty well okay. The elections of 1930 for Congress were won by the Democrats not over the economy but over Prohibition as an issue. The economy had not really surfaced as an issue. It was discussed with Prohibition and the Democrats cashed in on it.

But by 1931 things were in trouble. And then in 1932 Herbert Hoover had two bright ideas. One was to raise interest rates by two points, and the other one was to raise taxes by about one percent to 1.5 percent of the total economy. That's about what Obama proposes now. $200 billion, our economy is $14 trillion. It's about the same number. Hoover did it by increasing the surtax, that sound familiar, on people making more than $100,000 a year, from 20 percent to 55 percent, and he increased the base rate -- this is cute -- from 1.25 percent up to 4 percent.

And the result was that a billion dollars of extra revenue came to the Treasury out of a gross domestic product of $75 billion, so that's about the same as $200 billion out of an economy of $14 trillion. And it's about the same, the way Obama is going to go about doing it.

Why did Hoover do this? That's a footnote to history. We were on the gold standard back then. And Britain had just gone off the gold standard, and he was scared to death that all the money would disinvest in the dollar and our currency would collapse, and he felt he needed it for credibility. But that sent the economy into the total tailspin. That tax increase took affect on October 1, 1932. And on March 3, 1933 when Roosevelt took over, the banks were all closed. The whole system had completely collapsed and ground to a total halt, and that was not because of the market crash three-and-a-half years before, it was because of the tax increase four months before, and the interest rate increase seven months before that caused that.

And I think Barack Obama is going to repeat history. He will take the view that this is fundamental fairness in our society and that he cannot squander the mandate that he's been given to reverse the policies of the last 50 years simply because of the current economic situation. And he figures he'll just irrigate it with money.

Now, there's a more sinister thing at work here. When the campaign was going on, Obama said, "I'm going to cut taxes for the middle class." And all of us Republicans said, "No, you're not, you're lying."

You know what? He was telling the truth. Because Obama has two goals. One is to raise taxes on the rich, and the other is to use that money to eliminate taxes on the middle classs – so that taxpayers in the United States become a minority of the vote, so that taxpayers can be outvoted by tax eaters. Now this is a process that began under Clinton, where he exempted a lot of people from paying the income tax. It continued under Bush, and now will reach its apogee or nadir, if you will, under Obama.

Right now, you have 50 percent of the country paying 2.5 percent of the income taxes. By the way, 1 percent, the top 1 percent pays 40 percent of the income taxes, and in 2003 it paid 33 percent. Wait a minute, I thought Bush cut rates. He did, but the cut in rates generated such economic activity among the top 1 percent and swelled the Treasury with so much extra money, that their percentage of the take rose from 33 to 40 percent.

Obama is going to raise taxes on the rich, which will probably depress revenues but it's okay: he can run a deficit and claim it's the stimulus package, and at the same time use that money to cut taxes on the middle class, most of whom pay no taxes, so it's not a tax cut it's a welfare check. They'll get a stimulus check, they'll get a refundable tax credit, and – bang! – they're on welfare, the new name for AFDC. The welfare program is the stimulus package.

And there's going to be a whole re-jiggering of this vocabulary which will result in fewer and fewer people paying more and more of the taxes, and more and more of the people paying less and less of the taxes, until the fundamental political equation that made Ronald Reagan's candidacy possible, the tax-oppressed Reagan Democrats, will no longer be there because they will be getting a free rid, a subsidy, and only the rich people are going to be paying taxes.

Now, the only check we have on this, the only thing that stands between us and total political impotence is Mr. Saxby Chandliss, literally. Because we can't do a damn thing if we lose control of the United States Senate vis-à-vis a filibuster, and it all comes down to Georgia, and that's really what it is.

I would have nothing to suggest to you if we lose Georgia, but I hope that we're going to be able to win it.

The seeds of the Obama victory started in 1995 – no, 1997, '98 – when a group set itself up called MoveOn.org. It was an effort to move on past impeachment. You know, we don't endorse what Clinton did, but let's just move on. With George Soros' help they developed a vast grassroots structure, and it was an enormously important effort that they undertook. And they're the ones that got all of those internet names that really were the basis of the Obama campaign.

And we instead trusted the Republican Party to do it, and you saw the results of that two weeks ago. We have got to start at the cyber roots, grassroots, and build-up a structure on the Right that can offset what MoveOn.org has done in animating the Left.

Unidentified Audience Member: Could you comment on the successful amassing of millions of contributors by the Obama campaign, and a list of 10 million e-mails? And what that will mean?

Dick Morris: Sure. Well, that was the point that I was just making. It's a revolutionary change in politics.

When Hillary Clinton figured out how she was going to beat Barack Obama, she figured she'd go for a knockout, just like every presidential nominating process in history had been determined by a knockout.

And she won, she won the knockout. She won California, she won Florida, New York, Massachusetts, New Jersey. You know, what's left? Texas. But there was no knockout, because no matter how hard she hit Obama, he would go down, and then like one of these bobbles he would bounce right back up.

And the reason was that, in the past the only reason people had been knocked out of the process was that their donors dried up, the money dried up. People said, "No, I'm not going to write another check." And the result was that the guy couldn't continue no matter how much he wanted to. Now, McCain solved that problem by cutting his staff to the bone and soldiering on, and ultimately he came out the other side. But Obama didn't have to, he just double-clicked, and all of a sudden $10 million came in. Hillary, in the meantime, who had spent everything winning California, had to go back to the old rolodex, and she'd already maxed out everybody that loved her, and everybody that liked her, and everybody that felt neutral about her. And she was in the process of calling people that only hated her a little!

And it was her inability to reload and Obama's ability to double-click that resulted in Obama winning that huge string of 11 successive caucuses and primaries by top heavy margins in the two weeks after Super Tuesday that resulted in the electoral victory. Idaho, for example, went for Obama by 12 to 1, 12 delegates to 1 delegate, because Hillary had nothing in Idaho, because she didn't have any money when that came in.

On the other hand, in New Jersey, where Hillary fought like a tiger, Hillary won 59 to 49. So Idaho outvoted New Jersey, and that was all because of his ability to access the internet.