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02.01.2009 0

Editorial: Geithner and Obama’s Financial Destabilization Plan

  • On: 02/20/2009 09:53:02
  • In: Economy
  • On February 10th, Treasury Secretary Timothy Geithner unveiled the Administration’s latest $2.75 trillion bank bailout plan, the end result of which will be the nationalization of America’s banks.

    That, alone, is disconcerting enough. But what makes it all the more alarming is that despite the enormous burden it will place upon the taxpayers, Mr. Geithner intends to execute much of this plan without any Congressional debate, discussion, approval, authorization, or appropriation.

    Ultimately, the Geithner plan will perpetuate and worsen the financial crisis as the government once again intervenes to change the rules in the middle of the game. It is clear that government caused this crisis to begin with: the asset bubbles were caused by too much credit, too much lending, too low interest rates, and too much easy money from the Federal Reserve. And to date, government interventions have severely destabilized the housing market, and any possibility of a timely market correction.

    Mortgage-backed securities cannot be properly valued because it has been and remains unclear under the President’s $75 billion mortgage refinancing plan which homeowners will ultimately qualify for assistance, which homes will eventually be foreclosed upon, and therefore what the value of the mortgage-backed securities really are. And the provisions empowering bankruptcy judges to modify the loans can only make an already convoluted system all the more labyrinthine.

    The only viable solution always was and still is to let borrowers who cannot afford to pay back loans to be foreclosed upon. To let failed financial institutions that made loans that could not be paid back and are otherwise insolvent to be allowed to fail, and then subsequently acquired by other private entities. Had this occurred, the securities would have already been opened, the good sorted from the bad, and the values thereof already determined. The housing market would already be stable, and the winners and losers already sorted out.

    As the crisis has been prolonged, banks are being handed hundreds of billions of dollars each to help them cover for government-mandated malfeasance. Now, under the new plan, banks and other financial institutions are once again being forced to participate in a risky gamble. Ultimately, it is the taxpayer who will wind up beig stuck with the bill—paying for this $2.75 trillion bank bailout in the form of higher interest rates, more taxes, and grievous inflation.

    Meanwhile, the Treasury still cannot fully account for the first $700 billion it received in TARP funds to bail out the banks. The Federal Reserve still refuses to account for some $2 trillion in loans it gave in 2008. And the banks, themselves, have made it clear they don’t care to be bothered with nagging questions from taxpayers as to where their money went.

    As bad as that is, it only gets worse.

    If Congress does not act immediately to intervene in the new Geithner giveaway, more than $2 trillion will be borrowed from overseas, printed, and/or spent by the Treasury and Federal Reserve without any say-so from the American people—and without any vote by the people’s representatives.

    Government interventions to “stabilize” home values, “prevent” foreclosures, allow bankruptcy judges to modify mortgage terms, and otherwise tinker with the terms of loans, prolong the time when mortgage-backed securities will actually be valued by market forces, and prop up failed financial institutions will all be undertaken without the vaguest input from those sent to Washington to speak the peoples’ piece and protect their purse. And democratic rule will be ruled out of order.

    Clearly, there should be extended debate and an up-or-down vote on the entirety of the $2.75 trillion bank bailout now being proposed, as well as on all future Treasury and Federal Reserve-administered initiatives. And that includes the sale of U.S. Treasuries to finance the national debt. It is also high time that Congressional hearings be ordered to investigate the unaccountable activities of the Treasury and Federal Reserve.

    There is little question left that if not blocked, or at the very least radically modified, the $2.75 trillion bank bailout will ultimately result in the nationalization of the banking industry. And, perhaps, that is what the Obama Administration and its supporters intend.

    Already, Newsweek editors are calling for it, headlining their editorial “Why We Should Nationalize Troubled Banks Sooner Rather Than Later.” They support their contention by citing what they depict as the successes of the Japanese and Swedish bank bailouts over the past decade. In so doing, however, they gloss over the fact that the Japanese model has largely failed and the Swedish model included wiping out shareholders (something Messengers Obama and Geithner are reluctant to do).

    The Newsweek editors also fail to mention that in both instances – the Japanese bank bailout of 1998 and the Swedish version of 2008 – no definitive action was taken until the duly elected members of parliament expressly approved the actions taken. In short, in both countries, reasoned debate triumphed over arbitrary and authoritarian one-man rule. It would seem reasonable to expect that much, at least, from the salons entrusted with the treasures of the “world’s greatest democracy.”

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