“The $700 billion is really nothing. The treasury is just giving out this figure when the end figure may be $5 trillion… The decline in home prices of 20 percent is a relatively minor decline so far and it has created so many problems…”—Marc Faber, “Marc Faber Says $5 Trillion Needed for U.S. Financial Bailout,” Bloomberg News, September 26th, 2008.
One of the stated purposes of the now-defeated $700 billion bailout was “to ensure that such authority [granted to the Treasury] and such facilities are used in a manner that… protects home values…” Why would a bottoming housing market be of such concern to lawmakers? Why not just let the market correct itself?
Because, according to most accounts, the decline in home values is cited as one of the chief culprits of the subprime meltdown turned financial catastrophe. The global bank run has already begun—as evidenced by the failure of Washington Mutual last week, more recently Wachovia, and now the crisis spreading through Europe.
Without a big bailout of the housing market, the reasoning goes—which has already cost $750 billion in loans and appropriations this year alone—home values will continue to plummet. And then the mortgage-backed securities will be worthless. Then, according to the theory, the global financial system would collapse.
Therefore, the reasoning behind the bailout is this: Home values must not be allowed to decline.
If Marc Faber is right about the trajectory of home values, then, the worst of the global financial crisis may be yet to come. And it may be useless to try and prevent it from happening.
Some are calling it a crisis of confidence, but really, a system that allows banks to lend out some 10 times or so the amount of money it actually holds in assets—the fractional-reserve banking system—really doesn’t inspire much confidence in the first place. Taken in that sense, there is more money in circulation than actually exists. A lot more.
All it requires for the entire system to go down is for 10 percent—or perhaps less than that—of debt to go bad. That means 90 percent or so of borrowers could be balancing their books just fine, and yet the system could still be in great jeopardy.
Sure, the Federal government “guarantees” deposits up to $100,000. But, really, that has to be the biggest lie since Goebbels penned his diary. Some Big Government prevaricators actually want to expand the “guarantee” to “prevent” a bank run. What they really mean is to tell an even bigger lie so that folks won’t look behind the curtain.
And if Marc Faber’s right that the $700 billion figure being a lowball, then what was the point of the bailout?
It may have been a band-aid for a gaping wound. Very likely, it’s only intent is to buy enough time until after the election. That would make the now-defeated legislation a political bailout more than anything.
The $5 trillion figure would come later, after such time that the American people could not threaten the troubled seats of the House of Representatives.
And then, it would be too late for the American people, further indebted for posterity. How about letting the American people save their money, let bad debts go bad and figure out a better way to stimulate the economy than forcing our great-grandchildren to pay for it?
That’s what’s known as “ensuring that… such facilities are used in a manner that… protects home values…” for generations to come.
