Bailouts- The Cost to Americans

Today is December 5th, 2008 and the Labor Department has reported that an additional 533,000 jobs have been lost in November increasing total losses for the year to 1.9 million. This brings unemployment to 6.7% as reported.

 

I have always questioned the statistics being reported for one reason. During my unemployment period from 1989 to 1991 and after six months of unemployment compensation what statistic did I fall under for an 18 month period when I didn’t receive any benefits? I was unreported.

 

I must question the approach to the initial stimulus and the recent 700 billion bailout package. We all know that Washington D.C. is the address for special interests and influence peddling. Lets first look at the Stimulus package earlier this year February 13th when the Bush, Chaney brain trust attempted an infusion of cash to the American public in hopes that we would spend or pay down our debt. This package was 152 billion dollars which included the approval of Fannie Mae and Freddy Mac limit increase on the number of mortgages they could purchase.  The Fannie Mae, Freddie Mac problems go back to 2005 Ronald D. Utt, Ph.D.  wrote Time to Reform Fannie Mae and Freddie Mac he summed it up as follows the major problems is “Although management’s unearned bonuses have generated most of the headlines, the real cost to the nation is not the tawdry looting of the company by its top management team. The real problem is the concentration of risk in the hands of two massive and privileged companies that now dominate America’s housing finance markets.” Hence their buy out when mortgages continued to default at an alarming rate by the U.S. Government sanctioned by Hank Paulson at the bequest of leading corporate CEO’s and CFO’s of all your major Banking and  Investment Banking Firms. The risk associated with these mortgage backed securities had been repackaged over the years into various forms of derivative products and sold to worldwide financial institutions. When the cash flows from mortgage backed securities ceased the cash flows on these derivative products could not be met. Subsequently, capital requirements governing these financial institutions could not be met because of two reasons. They were short the cash and the value of their assets and derivatives were becoming worthless. The administration publicized that there was a credit crunch. In realistic terms there was no cash to lend out. The money pit was dry because the corporate officers and traders around the world siphoned all the cash off the top in the form of performance bonuses based on theoretical mark to market pricing of securities. This was the method of looting. 

 

The second bailout of 700 billion although an attempt to fund these cash flows is just a drop in the bucket. It is unknown the value of the derivatives and the underlying asset cash values in this entire mess. The attempts are to throw enough cash around to re establish a credit market. This approach has guaranteed major depositor balances to prevent a run on the banks. It also protects the wealth of those who created this mess sanctioned by our outgoing administration and their supporters. Recently, you have heard some commentary that we need to bail out those mortgages being foreclosed on. Not to be critical of their thought process, but I always thought that you attack a problem at the source to fix it. Wait, they are Wall Street and Banking who loosened the rules for profits and bonuses. My point is that if these institutions wanted to help the common man they would refinance any troubled mortgage at lower rates and extend the amortization periods where their monthly payments would be affordable with no exceptions even if it takes 60 years. By than the markets would have stabilized, hopefully with in the next 10 years, and just possibly housing prices would have reached the same price level of this last surge therefore eliminating short sales. Than again there wouldn’t be too much profit in it for them?

I learned one thing many years ago in my economics classes, for every winner there is a looser in a transaction, in this crisis the common man is the looser and he didn’t even trade. What he is loosing is as follows: his home, his job, his savings, his family and finally his faith in his government to protect him from foreign and domestic enemies.

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