As an investor and citizen, I have been following with increasing concern the shenanigans in the financial market. First it was the huge problem with greedy banks and an overextended Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) that had underwritten loans to more and more risky borrowers, gambling that the upside of high-interest-rate loans would offset the tremendous risk of default.
In retrospect, that was a sucker’s bet and no surprise that we’re seeing financial institutions failing because of their inability to conservatively balance and manage their portfolio.
The demise of Lehman Brothers (NYSE: LEH), fire sale of Merrill Lynch (NYSE: MER) and probable demise of American International Group (NYSE: AIG), sidestepped by a massive government bailout, show another facet of the same greed and poor business strategy.
There are a number of problems that got us here, but one big issue is the lack of regulation: strong Federal regulation would have tempered the unbounded greed of these institutions and helped avoid the troubles we now face. But a part of me says that the trouble is really because we’re afraid to have a truly free-market economy based on pure capitalism.
I know, you’re probably saying “we’ve never had pure, free-market capitalism in the United States” and I concur. Between tariffs, export controls, market regulation, business practice laws and the RICO laws, there have always been a lot of ropes fettering business practices in this country.
That’s a good thing, even though I recall reading books in business school that argued quite vociferously that unfettered capitalism was the only path to world economic stability and, ultimately, world peace. I never bought it, however, because it’s predicated on all countries allowing free access to their markets (though some economists have projections of how a free market trumps constrained markets in a global economy. It’s just never been borne out).
We all do better and have a better standard of living and more “contentment points” in a strong, healthy, growing economy, so controls and regulations that help us move in that direction are obviously and de facto a good thing. Let’s face it, as much as the late 90’s might have been the “dot com bubble”, it was also a very good time to be in business and I know I enjoyed the largess of the marketplace.
Which is why I find it so interesting that when I read the WSJ headline that Feds Plan $85 Billion Rescue Deal for AIG [sub required] or the Bloomberg report that the government is considering an AIG conservatorship plan, I dislike the notion and feel that if we really were a free market capitalist economy, we’d let the companies fail, knowing that new ones will spring up to replace them, stronger, smarter companies that will avoid these poor management decisions.
Fannie Mae and Freddie Mac were bailed out by the government. So was Chrysler, years ago, in a quite hotly debated rescue from mismanagement, Lee Iacocca’s hubris, and poor strategic planning. But Enron wasn’t bailed out and the Enron investors were left to their own personal financial nightmares.
The rule seems to be that if it’s a big enough company or enough people are adversely impacted then the never-empty wallet of the Federal government opens up and billions of taxpayer dollars are allocated to alleviate the impending crisis.
One place we can perhaps assign blame is with President Ronald Reagan, actually. He was the first to have such a deep faith in the free market and a general mistrust of government and federal controls that he restructured the market. We’ve been in that financially conservative place ever since. Heck, it was President Bill Clinton who signed the Financial Services Modernization Act of 1999 (also known as the Gramm-Leach-Bliley Act), which removed the walls separating banks, securities firms and insurers. Not good.
Since then both Clinton and Bush aggressively promoted home ownership, even for homeowners who couldn’t afford it. The magic solution? adjustable rate mortgages that had a low interest rate when the prime rate was low, but could rapidly grow to create unmanageable mortgage payments as the rate went up. Now those high risk subprime loans back almost 40% of private-sector mortgage bonds and that’s the root of the financial problem we now face.
Back to the central dilemma, though: should we bail out AIG or not? Should our hard earned dollars paid to the government as taxes be used to prevent these massive corporations from facing the dire consequences of their stupid, myopic actions?
I have to say that, yes, I think that we should. Or at least, we should have some sort of program that helps out those most affected by the demise of these companies. When mortgage holders find that their adjustable rate mortgages prove a nightmare because the rates have gone up, that’s one issue, but when a large corporation actively and aggressively markets to these subprime borrowers without fear of consequence, that’s very, very bad for the market.
The consequences are what we’re feeling today, with a dramatic drop in the financial market, the bankruptcy of Lehman, Federal bailout of AIG, and more to come as the ripples affect other markets and industries. Bailout because too many regular Joes are affected by these failures, but for goodness sake, tighten regulations and fix things so that we can prevent this happening again in the future!
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- Should the Fed bailout failing corporations like AIG?
might hurt the ego a bit, but a lifestyle bubble bursting could be a good thing. Earn the goods baby.
As much as I hate the government doing this, it has to be done. It is one thing for the government to give AIG 85 billion dollars, it is another thing for them to LOAN them the money, to be paid back with what I would assume is a high interest rate, meaning the government will be making money.
The government should “NOT” bail out AIG! All
they’re doing is perpetrating the same old “smoke
and mirror” game.
At some point we will have to pay dearly for the
phoney props. I’d rather the payday come now
rather than fall on my children and grandchildren
some years down the road.
The system is corrupt and things are not getting
any better. The more they hide and conceal, the
harder it will be when the “TRUTH” finally shines
through.
It’s truly a pathetic testimony to the way AIG
has handled it’s business. We still don’t know
how many shattered lives this mega-corporate
insurance beast has left in it’s wake.
I say stop the madness now. Let the chips fall
where they may and start fresh without the scams,
lies and deceit.
Anyone wondering why the government chooses to
bail some and not others. I’m sure if we dig a
little deeper we would find there is greater
political interest in those that get bailed as
opposed to those that do not.
We will all see the “true picture” when the house
of cards finally comes tumbling down!
Loan?! Does anybody REALLY beleive that? If AIG
could not profit from the multiple tens of
billions they had to work with before this
fiasco- whose to say they won’t churn through
this 85 billion?
What then? Another 85 billion, 170 billion? Has
anyone asked the “REAL” questions about why AIG
went insolvent in the first place? Not that I’ve
seen. It’s like giving a “crack head” $10,000 and
telling them to do right. I’ll wager 10 to 1 that
ten grand will go up in smoke – just like the 85
billion will.
I say use that 85 billion to bail out the 401k
holders, duped clients and the “ground troop”
employees (the CEO’s and upper levels got theirs,
trust me) and let this mis-managed beast die.
Dave,
The question is not if the Fed ‘should’ bail out AIG, but why it did, and if it will continue to do so. The answer is simple. Yes because its CEO Hank Greenberg is one of the most powerful and well connected of the uber elete, and when you have buddies who run the Fed, CFR, etc you pretty much get what you want. Which is what we have seen here: Ol’ Hank using his power as Vice Chairman of the Council on Foreign Relations, Chairman & Director of the Federal Reserve Bank of New York, and other power positions to make this bailout happen.
Need to understand this completly?
Then read “The Creature from Jekyll Island: A Second Look at the Federal Reserve.”
REF
http://www.answers.com/topic/hank-greenberg
http://www.thedeal.com/dealscape/2008/09/hank_greenberg_aig_is_a_nation.php
http://www.amazon.com/Creature-Jekyll-Island-Federal-Reserve/dp/0912986212
I am an economic-doufus. It hurts my brain too much to think economic ramifications. So I don’t know what I’m talking about, but…
Instead of guaranteeing the full amount of defaulted loans by massive loans to the Fannies and AIG’s, why don’t we just freeze all the interest rates of these balloon and sub-prime loans. Tomorrow morning, let’s convert all the existing balloon loans into fixed rates rolled back to the rate 3 months ago. Then instead of all these people foreclosing when 5% jumps to 12%, and the Govt (us taxpayers) buying the 100K loans back, let’s just guarantee a couple of points of revenue per year to the people that invested (unknowingly foolishly as it turns out) in Fannies and Merril’s. The cash needed is a few points of a loan, not the full value of a loan.
What am I obviously missing here?
Jim
Democrats blocked Bush�s Fannie Mae and Freddie Mac Reforms.
”These two entities -Fannie Mae and Freddie Mac – are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the
Financial Services Committee.
http://strategicthought-charles77.blogspot.com/2008/09/democrats-blocked-bushs-fannie-mae-and.html
it’s hard to object to the government’s mass bailouts from a historical standpoint since similar debt-producing methods were put into action to save the U.S. from the Depression; maybe we’re really socialists at heart and don’t want to admit it…
As presented, financial markets are in a mess today because of real estate. Here’s the way I understand it and the ideas I have for correcting the problems associated with it. Let me know what you think – if ever there was a time we all need to work together, this is it.
PROBLEMS
Many people were encouraged to enter into sub-prime real estate loans that carried very aggressive repayment terms. In most instances, people taking those loans never intended to pay them off.
Some people planned to sell their homes and others planned to refinance into loans that were more reasonable, but in almost every instance both the lender and the borrower knew the terms of the loans would be too expensive to keep for thirty years.
To some large extent, the federal government was encouraging this activity to make homes more affordable and to subsidize the economy, which has been wobbly since 9/11. And to that extent the plan worked quite well for several years.
However, over the years several problems began to arise:
Exploitation of the System
In certain areas of the country there was intense speculation in the real estate market, with people exploiting the program in systematic fashion. These people engaged in what was glamorously referred to as “flipping”. Of course, this activity enhanced the values of homes and actual long-term buyers were forced to pay more and more to obtain a home.
Excessive Valuations
The combination of people obtaining a home for primary use and speculators exploiting the system for profit created an environment of expectation for housing values to rise. And, as they did, more and more people began to speculate by not only flipping, but also by purchasing larger homes for their primary residence than maybe they needed. Of course, this only increased the demand and the expectation of higher valuations.
Predatory Lending
The growth in the market made lenders more and more competitive – creating more and more creative loan products that made initial payments smaller and smaller and pushed reconciliation further and further into the future. Brokers selling these loans to borrowers began touting these products as income opportunities for average homeowners.
To close the loans, many brokers began to make representations to homeowners that made these products seem less risky than they really were. This was quite easy since most of these products were tied to financial indexes and had various payment increase triggers that average homeowners did not understand. Very often mortgage brokers would present these details as practically unimportant, and suggested that it would be easy to convert these loans in the future – when prices would have risen even more.
Misleading Bundled Securities
As these mortgages flowed in mass to lenders, they would bundle them and redistribute them as securities. However, it appears there was little or no effort to bundle them in any meaningful fashion, so loans to speculators and others with little or no equity were bundled together with the mortgages of stable and established borrowers.
These bundles were then rated as securities with no concern for the deference in circumstances between the two. Thereafter these securities were sold around the world.
Valuation Bust
Since the economy was not growing at anything near the rate of the housing market, it was only a matter of time until this cycle was interrupted by stagnant housing valuations. The effect was similar to a game of musical chairs after the music is stopped – everyone was stuck wherever they were sitting and some were left standing with nowhere to sit.
Those who had been flipping houses finally began to dump them at a loss. Average homeowners that had planned to sell their home or refinance found they were unable to do so. Prices began to fall and interest rates began to rise. Homeowners found the loans they never intended to keep were now taking more and more of their income, until finally some could not hold out and began to lose their homes to foreclosure.
This caused home prices to drop even more just as triggers and indexes were going into effect for other homeowners. Those that could afford to do so began to sell their primary homes at a loss, which created even more of the same problem. Soon, average homeowners were trapped in homes with payments they could not afford and could not sell because the homes had become worth less than they owed on them.
Security Devaluation
As investors realized what was happening there was a rush to offload the securities that were based on these bundled mortgages. However, since no effort had been made to rate the mortgages before they were bundled, there was no way to know which securities contained the mortgages of stable homeowners and which ones contained the mortgages of flippers and marginal buyers. This caused all the securities to be devalued and eventually the various forms of this entire process led to the current bailouts of the investment banks holding these mortgage-backed securities.
SOLUTIONS
Housing Modernization Program
It occurs to me that when you have an abundance of product with a declining price, the obvious thing to do is stop producing the product. However, since this is not a very practical approach for housing, the answer is to modify what you are producing. More specifically, we should improve what we are producing.
I propose a national building code. A national building code that required extremely energy efficient housing products would serve two important purposes.
First, it would move the country in the direction of our stated goal of becoming energy self-sufficient. This is both, an environmental and a national security issue that is already understood by most people.
If all new residential construction in the nation was required to be smarter and extremely energy efficient, we would also create new markets for the products we already know we need and the jobs we already know we want. As everyone knows, the downside of such an effort (at least initially) is the major increase in cost of such improvements. Yet in this instance those increases would work for us.
If the cost of building a new home were to instantly increase by 25 or 30%, it would be reasonable to contemplate a major reduction in new home sales. However, if existing housing were “grandfathered” and not required to meet the new housing codes (except for new additions that would be required to meet the code), the demand for existing housing would grow much more rapidly.
This would go a long way toward stabilizing housing prices and would certainly speed the reduction of foreclosure inventories.
While some assistance would be required for home builders making the transition, this would be a much more productive use of tax dollars and may create a model for the transition needed in other industries.
Homeowner Stabilization Program
This plan would not be a substitute for the bailout of mortgage investors; it would simply approach it from the bottom up. Instead of giving financial companies billions of dollars to fund foreclosures of average homeowners, this program would work with homeowners to modify their loans into graduating fixed loans – loans that can be set to initial payments that are affordable to the homeowner, but that increase by a fixed amount each year.
This would allow millions of citizens to stay in their homes and provide them a manageable way forward that can be understood and relied upon, unlike the unpredictable adjustable rate mortgages that caused the problem in the first place.
Life of Asset Valuations
To begin with, there needs to be some way to phase out older, inefficient homes. This will insure continued growth of the smarter and extremely energy efficient products that the industry is transitioning to, as well as providing a valuable function in appraisals. And, since all new additions to a home would be required to meet the new, smarter and extremely energy national building code, the life of any home could be extended by conducting improvements over time.
Fifty-year Mortgages
So long as a home’s Life of Asset Valuation will support it, there is no reason mortgages should not be extended to fifty years. Americans are living longer than ever, and the financed asset (the borrower’s house) isn’t something they can run off with. This would help more people stay in their existing homes and would ease the transition to the smarter and extremely energy efficient national building code.
That just highlights a starting point. I’m pretty sure there are probably a million people that have a million reasons why some or all of this won’t work. I’m happy to hear those reasons and believe they will only help improve things. However, I would hope that anyone supplying a criticism would also provide a better idea. So far, I haven’t heard ANYTHING about changing any of the fundamentals that will affect average citizens or improving the lives of Americans in this bailout process.
Karen Hurtz
One benefit of the bailout, is the transparency of the actions of our government. We can see clearly the transfer of hard earned taxpayer dollars, by the billions, into the pockets of mega corporations. and since we have seldom if ever heard the actual truth from these officials, it could be just as likely that the reason for the bailouts is the fear that the economy may NOT collapse if these behemoths fall. Imagine the possibilities if that happened!
Why has no one mentioned those c.e.o.’s that got those huge bonus’s from company stock and the hard labor of the people that worked every day for very little just to see those BOZO’S reap the rewards.
Bush wants Congress to authorize as much as $700 billion to buy troubled mortgage-related assests. This is an obscene transfer of money from tax payers to financial institutions. I think there is a better was to handle this crisis and it should have been done a long time ago.
CONGRESS NEEDS TO OUTLAW PREDITORY BUSINESS PRACTICES. For example, I am willing to bet that almost everyone who can’t pay there mortgages also has a pile of credit card debt and that they are paying like 29.9% interest on that borrowed money. That’s obscene. Credit card companies should only be allowed to charge a maximum of 12% interest. Also if there is debt at more than one rate on the card the debt should be rotated out in the order that it was acquired. Currently credit card companies rotate out the lowest interest rate debt first.
Putting a 12% cap on credit card debt would put hundreds of dollars a month in the hands of many struggling homes owners that could keep them from going into foreclosure.
And what about those cell phone contracts? And how about reinstating the uptake rule?
Hell no I wouldn’t bail AIG out. I know from personal experience that there were many senior-level executives involved in financal abuse and extra-marital affairs.
I personally found that my ex-wife was involved in a money-scam where, as the senior vice president of marketing, she was submitting invoices for three (at least) ficticious companies, approving the invoices herself, sending them to accounting for payment and then retrieving the checks at three local Darien, CT P.O. boxes. When I aproached her like a concerned spouse, she confessed that she had been stealing for years. Realizing the seriousness of the problem (illness) and the possible legal ramifications, I suggested that we, together, approach her new boss, the president of the sales broker division to discuss a medical leave and a payback plan. I’m not sure of the total but I believe amount was around $600,000, but I’ll never know.
The president flat out said “don’t worry about it.”
My ex-wife filed for divorce within twelve months. During the divorce proceedings I learned that she was having an affair with her boss, who to this day has a wife and six children living in Isreal. Lovely!
At the recommendation of my attorney, I cooperated with AIG’s in-house investigation by turning over all of the bank statements from the Darien checking accounts. I haven’t heard a word from AIG since.
Both my ex-wife and her boyfriend were eventually fired.
I also learned later from numerous co-workers that this type of activity happened all over AIG. The attitude was “get it while you can, and don’t get caught.”
My question is “if you cheat on your spouse why not cheat on your stockholder?”
While I think AIG should crash and burn, I hope my ex-wife and her boyfriend find nothing more than peace and happiness – the same peace and happiness they have shown me and the other AIG stockholders.
At Blogworld, I heard the best rationale for this yet. These banks are not being bailed out because they were too big, but because they were too metastasized. That is, if GM failed, you could compartmentalize it away from the rest of the economy and minimize the collateral damage. If AIG or some of the others go under, their tendrils are so spread that they would bring down companies two, three and four times removed from direct connectivity to AIG.
As for the government getting involved, remember that much of this started with the quasi-government Fannie Mae and Freddie Mac. The politicians put pressure on these two to act as instruments of social policy. Barney Frank in particular was constantly trying to force them to make home loans to the poor. This they did and now we pay the price.
Politicians react to perceived needs from the populace. Not necessarily real ones, but perceived ones. Bankers need to react to financial realities. When these two mix and politicians have power over banks, you are in for a world of hurt.
It’s fine that the government bail out AIG in order to keep it from becoming a sunami but i don’t want to for pay it. They should pay back the government from the profits they make. The CEO and on down the line should take pay cuts. If i take a loan from the an institute i have to pay back from my income not the tax payers pocket. They have taken enough from us already. They are going to cripple what’s left of the “so called middle America” I have had enough. AIG charges consumers large premiums for insurance with no sympathy. I have very little for them except that people need thier jobs but if they keep taxing us …..they will tax all of the “middle class” out of thier homes and into the streets. So they say the next generation will have to pay for it , who are they kidding we all are paying for and will continue to do so. Do you think they will raise our taxes untill the next generation comes in. Do they think all American are sleeping? We need Our Government to act responsibly and clean house…..
As I understand it, it’s not a bailout so much as a purchase of assets whose loans are in default, much like the RTC of the 1980s. In that case, the government gradually sold off the assets and actually made money on the deal in the end.
I don’t think anyone knows the true extent of the deal, but it may not be as bad as the press is making it out to be. In any case, there weren’t many choices this time.
The government is charging these companies that it bails out interest. This is our money they are using for this purpose. I think that the money should be paid back to the American taxpayers with interest when the financial market recovers. It seems only fair to me.
NO!!! to the BAILOUT -Let the TREE FALL
To Anyone with a Heart and a Head
To my 42 million GENERATION “X” Brothers & Sisters
To the gifted 90 million GENERATION Y Future Dreamers,
My main avenue to earn money is not from music. I wish it was, but I still consider myself having a heart of an artist-dreamer. For almost 15 years, I’ve been working within the banking and financial industry. Most of my experience has been serving the wealth and influential in our society.
There is fear and anger moving about in this circle. I’ve read about something like this coming for years. I’ve dreamt it. I’ve even had a horrible vision of Mexico being owned by the US. It then became a harbor for the US poor after being affected by a huge financial meltdown.
THE BAILOUT IS NOT THE ANSWER! It will only create a false sense of peace and calm for maybe 3 to 5 years before a huge demonic depressive storm. It will reward and give continuance to the “leaders” of capitalism and government that took us down this path.
I say let fall the towers of greed that created this mess. Let rise a new generation of leaders with hearts of stewardship! Call the Josephs out of the prisons.
Let TRUTH come out! If that takes us into recession, so be it! Better to burn a little now that to be eaten by the fire. Better to cut off a bad arm than to lose the whole body..
When a TREE is falling in the wrong direction after a BAD cut, the tree cutter CANNOT make an “adjustment” cut to correct the wrong.
Let’s let the tree fall! Don’t let our “leaders” bully us and our generation into swallowing a horrible, bitter pill.
Say NO to the Bail Out under ANY conditions!
Angel Zuniga Martinez
Angel and the Love Mongers
Keep up doing good articles. Long blogs but Worth reading.
THE FINANCIAL CRISIS AND THE FEDERAL RESERVE
Back in the 18th century, Thomas Jefferson said, ?If the American people ever allow private banks to control the issue of their currency, first by inflation then by deflation, the banks and the corporations will grow up around them, will deprive the people of all property until their children wake up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.?
Jefferson?s words are as valid today as they were in the 18th century. For many years, the American economy has been based on an unsound system of issuing ?fiat paper money? printed at will by the Federal Reserve, an organization of large private international banks that Jefferson warned us about. The Fed has kept the economy going by artificially keeping the interest rates low and by selling Treasury Bills to foreign governments like China ($500 billion) which in turn use those securities as leverage to make our government agree to trade and others deals that favor them over American citizens, workers and businesses.
Very rarely is it mentioned that the Federal Reserve is actually a private entity of international bankers who have been given the power to control our monetary system. The Federal Reserve is not accountable to the U.S. Government; and yet the Federal Reserve continues to hold the reins to our monetary system often acting at the behest of large national and international private banks.
Americans have been told for years that our economy was strong and booming. Yet, we find ourselves in the middle of a financial crisis with dire predictions of a possible recession and/or depression coming from leaders in our government, Congress, Wall Street and the big commercial banks. What is the solution these Leaders are proposing behind closed doors? They want to come up with a plan to do the very thing that caused this financial crisis in the first place: they are proposing more government intervention into the free market.
Ever since the Depression, the federal government has involved itself deeply in the national housing market by developing numerous special housing programs to encourage home ownership. Government-sponsored private organizations like Fannie Mae and Freddie Mac were able to obtain a monopoly position in the mortgage market, especially the mortgage-backed securities market, because of the advantages bestowed upon them by the federal government mostly through government loan guarantees. By coincidence, executives from these two organizations routinely made significant bribes, I mean campaign contributions, to many members of congress to keep these advantages.
Some legislation passed by Congress, such as the Community Reinvestment Act that required banks to make loans to previously underserved segments of their communities, changed the way lending institutions approved loans. Under the threat of legal action from the U.S. Attorney General, federal legislation and policy decisions forced banks to lend to people who normally would be rejected as bad credit risks. These governmental measures, combined with manipulation of interest rates by the Federal Reserve, led to an unsustainable housing boom. The magnitude of the real estate bubble that has just exploded would never have happened without the government?s constant interference in the housing market coupled with the Federal Reserve?s actions of injecting a constant stream of easy money and credit into the U.S. economy, for all too many years.
In addition, in the last 14 months alone, the Federal Reserve, a non-government organization of private bankers, has interceded 34 times in the financial markets, primarily by providing fiat money backed by U.S. Treasury securities (government IOU’s) to their friends in investment-banking firms in exchange for getting those companies? holdings of extremely poorly performing or non-performing mortgage-backed securities.
Here?s a list of some of the more recent Federal Reserve actions in the financial markets published by Reuters:
The Cost to Taxpayers and the Bailout Type
$ 700 billion+ – Proposed Treasury Department legislation
$ 29 billion – Bear Stearns financing
$ 200 billion – Fannie Mae and Freddie Mac nationalization
$ 85 billion – AIG loan and nationalization
$ 300 billion – Federal Housing Administration housing rescue bill
$4 billion – Mortgage community grants
$87 billion – JPMorgan Chase repayments
$200 billion+ – Loans to banks via Fed’s Term Auction Facility
$ 50 billion – Loans from Depression-era Exchange Stabilization Fund
$144 billion – Purchases of mortgage securities by Fannie Mae and Freddie Mac
TOTAL: $1.8 trillion+
COST PER US HOUSHOLD: $17,064+
The members of the Federal Reserve Board have essentially been bailing out their friends in private business enterprises that pay their employees exorbitant salaries while lowering the value of assets held by ordinary people (via higher inflation) and increasing the tax burden that Americans, their children and grandchildren will need to pay sometime in the future to compensate for the worthless mortgage-backed assets now held by the Fed.
For example, Fannie Mae?s previous CEO was paid a $987,000 salary in 2007, a $2.3 million bonus, and a total compensation (including stock) of $11.6 million. Not to be outdone, Congress decided on July 31, 2008 (via a new housing bill) to provide financial relief to hundreds of thousands of persons who signed mortgage agreements to live in homes that they never could afford in the first place. So the individual American taxpayers who pay their mortgages on time, live within their means and successfully manage their own financial affairs, get stuck with the bill for bailing out those who do not. This particular bill raised the national debt ceiling by $800 billion (to $10.6 trillion) and created risks for current and future taxpayers that are virtually impossible to calculate.
The American taxpayers now own mortgage companies, insurance companies, and if we keep going in this direction, we are going to own a lot more. If the big three American car companies need to be bailed out, rest assured that the Federal Reserve is going to bail them out too, with taxpayers? money of course.
All of these bailouts have one thing in common: They seek to prevent the quick sale of bad debt and worthless assets at market prices. Instead, the Federal Reserve is trying to artificially prop up those markets and keep those assets trading at prices far in excess of their actual market value. By using trillions of dollars of borrowed taxpayer money to purchase these bad investments, the government is going deeper and deeper into debt and is actually ensuring even greater instability in the financial system in the long term.
The questions to be asked are: (1) What Constitutional authority exists for the U.S. Government or Federal Reserve to use public (taxpayer) funds for definitively private purposes? and (2) What legal authority in the Constitution allows the U.S. Government to directly purchase the distressed assets and contracts of privately owned Wall Street firms for the express purpose of mitigating their private investment risks and losses? The answer to both of these questions is that there is no legal authority in the US Constitution to use taxpayer money for these purposes.
The solution to the problem is to end government meddling in the free market. It is time this process is put to an end, or at the very least, reigned in. The government should sell off the assets of Fannie Mae and Freddie Mac quickly and close down these corrupt organizations. Government must reduce the volume and complexity of regulations it imposes on lending institutions and stop passing social engineering legislation, like the Community Reinvestment Act, that interferes in the free market economy and which has ultimately led to this financial crisis.
History shows us that when the destruction of monetary value becomes rampant, as the actions of our congress and the Fed would indicate, nearly everyone suffers and both the economic and political structure becomes unstable. The Federal Reserve System has been the tool used by the major bankers to allow them to gain control over the smaller regional and local banks. Our current financial crisis is an example of this with J.P. Morgan buying up the competition, sometimes with taxpayers help.
The Fed has also acted as the financing agency for Congress’ unprecedented deficit spending on an ever growing, more intrusive federal bureaucracy and the expansion of the welfare state. Some people believe that the private bankers in the Federal Reserve wield so much power that they can intentionally manipulate the economy in order to influence the results of our presidential elections.
Our government and the American people do not need the help of any private banking cartel to manage our monetary system. Once we come up with a plan to solve this current crisis, we need to repeal the Federal Reserve Act and return control of our currency to Congress where it belongs, as was the intent of our Founders.
We also need to have a serious national discussion about how real currency reform can be achieved. As long as the private bankers that make up the Federal Reserve Board have control over our nation’s money, Congress’ control of the purse-strings will not have the benefits the country?s Founders intended.
I support legislation introduced by Congressman Ron Paul, of Texas, entitled ?Federal Reserve Board Abolition Act (H.R. 2755) that will restore financial stability to America’s economy by abolishing the Federal Reserve Board.
John Wallace
NY Campaign for Liberty
Chatham, New York 12037
http://www.NYCampaignForLiberty.com
Wow, these are some of the longest comments I’ve ever seen.
Dave you made a key comment:
The problems we are having now stem back to the Reagan aera and all his successors. We can’t just put this on the last administration. It is important to remember that all the heroes of the 90’s (Greenspan, Rubin, Clinton) were part of creating this mess as well.
The one guy who get’s it right is Ron Paul (thanks to John Wallace for mentioning him). But our country has clearly decided NOT to listen to him. Here we are.
Good discussion!
If you are smart enough you can come up with scenarios such as these. It takes a special group of people to follow through on an idea and make it a reality. I’m positive that the members of the Manhattan project regretted their involvement. A group of people who took an idea and made it a reality. I can only admire the genius behind that breakthrough. I cannot say the same for these people on wall street. I will admire their tenacity and dedication. It’s the end result that really matters. We as a country say we will never drop another atomic bomb and I believe it. But we have a tendency to allow our greed to get out of control over and over and over again. All I can say is WOW this sucks.
Do you know where all the money went. To the 10% of the population who owned 2 or more homes and sold one of them at a completely inflated price to someone who couldn’t afford it. This is the really sad scenario in all of this. Most of the missing money went to people who could afford at least two houses in the first place. The rich get…. you know
WE should NOT Bail out any of those lying,stealing,GREEDY,SOBs.We the people should be getting help if needed.I am a one truck operation and barely hanging on.So,why won’t our CROOKED Gov’t help out the little businesses.
I believe its because we’re not into there pockets.
The whole movement of bailing out AIG is very suspicious. And this attention on the bonus I think is a clear
distraction. There is no doubt that these bonus payments are questionable but I think the whole hype around it is to
distract the attention of the people from questioning “what is being done with the 170 Billion $ and how is that
used?”. Everyone keeps saying that AIG is too big to fail but has anyone really explained the specifics? I would say
lets try and understand why were they too big to fail as the root cause of this bonus outrage is not allowing AIG to
file for bankruptcy. The other thing that some people dont realise is that the 170 Billion $ is not completely tax money. A significant part is from FED (which is not tax money). It amazes me that the FED would loan money to AIG (even if its collateralisd) given the fact that its an insurance company and not a depository institution. So I guess the summary of my comment today is that the whole AIG bailout is very suspicious
It’s hard to imagine what would have happened without the bailouts. I’m sure there would have been more turmoil and devastation among other companies and within the financial markets globally without the bailouts. On the other hand, I’m more of a capitalist. I believe in more of a government “hands off” policy. Let the markets correct themselves.