10.01.2008 0

Big Government’s “Negligent Financicide”

  • On: 10/22/2008 17:01:05
  • In: Economy

  • All the back and forth over the proposed $700 billion bailout of New York financial firms has degenerated into gibberish, incomprehensible to most voters. That, of course, is exactly what the political class wants. If people are confused, then they have no choice but to leave the decisions up to the very people who created the mess in the first place. There is no better way for a criminal to cover his tracks than to be the one charged with remedying the crime.

    And what the politicians have done is criminal. Nobody may serve a day in jail. But there can be no doubt that these people knew what they were doing, knew the risk, and didn’t care. Call it “negligent financicide”.

    Despite all the huffing and puffing, there is no doubt that Congress will “do something.” Senator Dodd and Representative Barney Frank will posture for the camera, trying desperately to avoid answering questions about their deep involvement in creating this disaster. And, many Republicans will momentarily find their manhood (and womanhood) to announce their opposition to the plan, belatedly agreeing with those few honest souls who have been warning about this for a long time: true leaders like Senators Jim DeMint and Tom Coburn.

    But at the end of the day, Congress will pass something to funnel hundreds of billions of dollars to the financial sector. They will say, as that socialist Barney Frank did a couple of days ago, that it is a failure of the “private sector.” In truth, of course, it is a total failure of government – an abject failure of the soft socialist policies they have forced on the American public.

    And, in truth, this will not be a bailout of Wall Street at all. It is a bailout of the U.S. Government. As Deep Throat admonished, let’s follow the money.

    In 1995, the Clinton Administration issued rules that required banks and lending institutions to give loans to people who could not afford them. The lending standards were essentially gutted. Banks either gave the loans to people unable to pay the money back or faced the loss of their license.

    The banks complied. The intimidating force of the federal government has a way of getting what it wants. The banks got the money to lend by selling the bad mortgages. That is where Fannie Mae and Freddie Mac came in. These semi-government entities “bought” the bad mortgages from the banks. But where did Fannie and Freddie get the money to buy the bad debt?

    Fannie and Freddie got the money by packaging the bad debts into bundles and selling them on Wall Street and to the world. Now, most people would never have bought these bundles except for one thing: Fannie and Freddie marketed them as backed by the U.S. Government – by you and me and all other taxpayers. So, naturally, investors bought them. And over time, these bundles were traded, used as collateral for other loans, in effect they were treated just like real money.

    Meanwhile the U.S. Government was borrowing money hand over fist to fund the excessive and wasteful spending that has become the accepted norm. The Government was paying for every silly leftwing fad or experiment the loony-Left could dream up. But they kept the growing debt of Fannie and Freddie “off-book.” They never counted it.

    So we end up with the Government owing $9.4 trillion (and set to rise to $11.3 trillion under the Paulson plan) – much of it to foreign governments and investors – plus the “off-book” debt of Fannie and Freddie. When the bad mortgages began to fail and there was no cash flow to keep the Ponzi scheme afloat, the U.S. Government had no choice to come in make good on that “off-book” debt.

    But then it gets really interesting. The U.S. Government still owes that $9.4 trillion. And to make matters worse, over the next 12 months, $1.83 trillion of that debt comes due – we have to either pay that much money OR sell new debt to pay off the debt coming due. And there is just no way to do it.

    What the Congress and the government have done is borrowed way beyond its credit limit. With the foreign debt coming due, the U.S. Government has to find a way to finance that looming $1.83 trillion. And that is where the Paulson bailout comes in.

    As envisioned, the U.S. Government would “buy” $700 billion worth of the bad debt it created. Money would go to the financial sector and we, the citizens become owners of the bad mortgages. Then, as the U.S. Government faces the $1.83 trillion in debt it has to re-finance, who do you think is going to buy it? Well, a big part of that debt will be purchased by the same firms that just dumped the bad mortgage debt.

    Another Ponzi scheme. The banks get to replace near worthless “assets” of mortgage bundles with more secure assets of government paper. The U.S. Government knows it will have more likelihood of re-financing the looming $1.83 trillion debt.

    And it might work – for a little while. But that massive U.S. Government debt is a lot bigger than the $1.83 trillion coming due in the next year. And the minute foreign investors sense that the public is tiring of the oppressive drain and will not continue playing the role of the drooling fool having its pocket picked, the money flow will stop. That will put us right back where we are now — only in a much deeper abyss.

    So, if Congress and the public want to impose restrictions and requirements on those firms selling the bad debt to the government, that’s fine with me. These were smart people who knew the scam. When the music stopped they were the ones left standing without a seat to jump into. But the real culprit of this nightmare also has to be whacked.

    The real culprit is Big Government, the liberal ideologues who forced the banks to lend money to people who couldn’t pay. The leftwing zealots who pledge one dollar of assets to four or five different lenders. And those people who took mortgages they knew they couldn’t pay and did it anyway.

    So, here are some suggestions that might find their way onto the floor of the Senate as amendments to any bailout of the U.S. Government.

    First, let’s address the people now sitting in houses about to become “public housing” in the truest sense of the term. The liberals scream “keep these people in their homes.” But why should millions of Americans who played by the rules, paid their bills and did not get into trouble be forced to pay for these people’s houses? Why should those who were responsible be forced to pay for those that were not?

    These homes are public property. They should be used for public good. Returning veterans – men and women who have fought to defend America – should be given first right of refusal on any property on the government-owned list. They should get that property at market price and have a three-year no-interest loan. Let this public property be used to support those who have defended America, not by those who defrauded America.

    And for those individuals who do remain in the houses they cannot afford, they should be required to meet all standards expected by the public. They should prove they are productive citizens. The American public has no tolerance for more give-away welfare programs. They should be required to pass periodic drug tests. Their children must attend school, delinquencies must result in eviction. They must maintain the property; any damage or failed upkeep would result in immediate eviction.

    Second, there must be an amendment to any bailout that requires the federal government to list all the off-book debts – including all entitlement programs. As a nation we cannot begin to dig out of this mess unless we know exactly what we owe and to whom we owe it.

    And finally, any proposal must include a provision that repeals the lax lending standards mandate and removes the gun from the heads of lending institutions and banks. The insane socialist policy of extending loans to people who cannot pay them back must end.

    The liberals have been hiding their crimes behind a blizzard of class-warfare nonsense. But, if it is class warfare they want, then it is class warfare they will get. I don’t think they will like the result.

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