So it passed, the massive bailout to help save the banks of America. $810 billion dollars. It was $700 billion a little while ago and failed to pass, but disaster relief and further incentives sweetened the deal and like a greased sex toy into the collective butts of working class America… it goes through… and guess what, we’re getting screwed again.
In the words of Jay Leno, we should have passed it when it was only $700 billion and saved ourselves the spare change.
I was until this point a self-confessed econo-moron, but felt it was important to have at least a grasp of the details regarding the current crisis. To be honest, I wish I’d left it alone. From what I gather, the U.S. government is buying out securities and loans from the ailing banks, in some cases the proposed spending technique being for the government to act as primary share holders, buying the majority stocks and keeping the whole thing afloat. As I heard recently from one radio commentator, it’s a little bit like the Titanic buying out the iceberg that’s about to sink it. A sobering thought, made more so by our current trade deficit with China and the rest of the world, running two wars and in addition having a populace that spends $800 billion more than it earns, every year.
The plummeting housing market takes the lion share of the blame, and herein lies an interesting fact. That is, no politician can admit the truth regarding the poor of this country and the houses they live in (at least for now) and why the buy-out of millions of mortgages is a bad idea. To state this truth would be politically untenable. Why? Because they would have admit this: some people don’t get to own homes. They simply can’t afford them. Know any politicians that will say that?
During the Clinton administration and beyond, the government was
paying off encouraging lenders to give home loans to lower income families through the Community Reinvestment Act, loans which inevitably these families would not be able to afford. It looked good on paper to the government, poor people had homes, and lenders were making a crap load of money lending to this new demographic. A lot of these loans were adjustable rate, which is great during times of prosperity, but when things fail, you’re stuck with higher payments. Then, with changing financial innovations where mortgages could be bought and sold, large companies such as Fannie Mae and Freddie Mac started gaining the majority of these bad loans. People started defaulting on their loans (to the tune of 1.5 million homes in foreclosure, and a further 8.8 million with zero or negative equity in their homes) causing a loss and capital and resulting in bankruptcy of these massive firms.
The fault for this lies across the board, the homeowners should have done their math better, loaners shouldn’t have been irresponsibly lending to those they must have known couldn’t afford it, and the government shouldn’t have been prodding the loaners to, well, loan.
Will the politicians admit the mistake? No, they’ll simply buy out the mistakes, meaning we will absorb the cost and Wall Street can get back to work creating the next bubble to burst, exchanging financial common sense and forward thinking for the ever addictive ‘quick buck’.
Thanks financial deregulation!
As Christopher Hitchens states in his Vanity Fair article:
“I have heard arguments about whether it was Milton Friedman or Gore Vidal who first came up with this apt summary of a collusion between the overweening state and certain favored monopolistic concerns, whereby the profits can be privatized and the debts conveniently socialized…”