Bailing Out the Rich

I had put off writing an article on the bailout up to now; because I wanted see how it would shake out.  Now that the bailout bill has been signed into law, it’s time to weigh in.  Like many Americans, I feel that we have been sold out by our Government.  The very people who are responsible for this catastrophe are proclaiming to lead us out of it.  Their incompetence is mind-numbing.

The Sudden Crisis

One thing that really stinks of coercion is the sudden nature of this crisis.  From out of nowhere, the President is on TV telling Americans that if we don’t cough up 700 Billion dollars the financial system is going to collapse immediately.  There’s no time for debate, no options or clarification.  The world is going to end right now unless we give the Treasury Secretary everything he wants.  By the way, don’t ask what they are going to do with all of that money, because they don’t really know.  They just need it now.

Our Future at Stake

I’m no economist, but I just don’t believe the banking system would have failed.  Despite all of the scare-mongering, most banks would find a way to survive in business, without a bailout. If the bailout got voted down, the strong banks would buy up the weak banks and adjust their business models.  The tight credit markets are definitely affecting the economy, but that would recover as well.  As long as there is money to be made, banks will go after it.  And, if we are stupid enough to give them Trillions of dollars to expunge their past greed, they will happily take that as well.

The Blank Check

What I hate the most about this poorly conceived plan is that it is open-ended.  There is no way to estimate how much the “toxic” securities are worth. And there is no guarantee that by accepting this liability, the banking system will recover. Basically, the plan is to shift a massive amount of bad loans onto taxpayers and hope for the best.  If it all goes according to plan, the banks will benefit and taxpayers will get stuck with the bill.  And, if it all goes badly, expect the banks to want more money.

What about Main Street?

Friday, I was talking to a friend of mine who had just lost her house.  Their mortgage had skyrocketed up to 12% and they couldn’t afford the payments.  They tried to deal with the bank in good faith, but the bank refused to lower the interest rate back to anything reasonable.  And of course, the foreclosure will cost the bank a small fortune, which will be passed on to taxpayers. 

So, how is this bailout plan good for Main Street?  How are we helping by foreclosing on people who are willing to pay their loans?  Why are we bailing out banks, when they are burying homeowners with exploding interest rates?  Shouldn’t we demand fair mortgage rates as part of any bailout plan?  Shouldn’t we mitigate foreclosures to help the recovery?

My Predictions

Housing won’t recover for another two years.  Real wages, adjusted for inflation, haven’t gone up in decades.  This bailout plan counts on housing recovering quickly and that isn’t going to happen.  When housing becomes affordable to average Americans and there are reasonable loans available, then housing will start to sell.  Until then, don’t expect a housing recovery from any action by our Government.

This bailout will cost taxpayers a couple of Trillion dollars.  This will be added to the existing 9 Trillion in debt, which will substantially weaken America’s financial standing.  Other industries, such as automakers, will also expect bailouts.  Worse yet, there won’t be any lasting and meaningful reform of the mortgage and banking industries.  So, banks will expect another bailout during the next economic downturn.

The Bottom Line

The bottom line in America today is the rich keep getting richer, with help from our Government.  I’m a capitalist and I don’t believe in the redistribution of wealth, in either direction.  When our Government takes money from Main Street to give to Wall Street, this is a crime against the American taxpayer.  We are bankrupting our children’s futures to further enrich the wealthy.

“Government is not the solution to our problem, government is the problem.”

Ronald Reagan – 40th President of the United States

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