Hey, Congress, Wait a Minute!

Posted by Ray on September 22, 2008 under Main | 2 Comments to Read

Have you been reading about this bailout package for the financial institutions? Unless you have been living under a rock I assume you have. This package should not go through it is a perversion of capitalism. It is socializing the financial services industry, well I take that back, it is socializing the debt of the financial services industry.

This bailout package is bigger than anything that has ever been offered to corporate America. During the Great Depression nothing of this magnitude was never even seriously discussed. Remember the Depression? Banks were closed and bankrupt, foreclosure rates were 20% or higher, etc. etc. None of that is happening now, so why a bailout?

Currently, foreclosure rates are less than 10% of all mortgages. Delinquencies are at about 11%, but real estate prices have sunk 20% or so. None of those numbers are serious enough to even consider this bailout package. The real problem is with all of these firms using the securities to leverage themselves 30+ times for every dollar worth of these bonds. That sounds like a corporate problem rather than a Federal problem.

Banks or brokerages, what’s more important? Clearly the answer is banks, but this package is geared towards Wall St, not to your local financial institution. Banks will benefit from this bailout, but they do not need it, we have FDIC, remember? Investment firms need this bailout, but they are less important than your local bank.

Lehman filed for bankruptcy last week, did your bank close its doors because of that? Nope, they did not. Bear Sterns collapsed, did your bank close its doors? Nope. Morgan, Merrill and Goldman are in trouble, but if the went bankrupt tomorrow would that influence your life? Probably not. Investment banks and retail banks are totally different and independent of each other and the collapse of investment firms has little impact on commercial banks.

With that said, let’s look at this bailout package. Who benefits, the tax payer? Nope, not at all. Basically, we are buying all of corporate America’s bad debt and assuming all of the risk while these institutions, who caused this problem, will receive par value for their securities. This is on top of the Fed injecting over $1 TRILLION dollars into the monetary system over the last 12 months. This is on top of the Fed giving money to JP Morgan to buy Bear Sterns. This is on top of the private “low interest rate” slush fund already set up for these guys. Are you seeing it yet?

These guys have had all the money in the world HANDED to them by you and I, no pun intended UBS. What have they done with all of this cheap or free cash? Screwed it up even more. So the answer is to socialize corporate America’s debt? Let’s examine the situation further.

$700 Billion dollars, this caused the US to raise its debt ceiling to $11.6 Trillion dollars, like we do not have enough problems, to buy, at par, all of these bad bonds. Keep in mind the proposal for this bailout was only 2 ½ pages long…basically a blank check without even a rudimentary outline to how its going to be handled… it basically allows for the government to buy all of these bonds, hire asset managers from Wall St to do it and dump corporate America’s problem directly on the taxpayer.

Here is the issue we have with this, it does not solve the problem, at all. There will still be a major bank failure this year, there is nothing that can prevent that. This bailout is buying the debt from these companies, but the people paying back the debt, the homeowner, is still losing their house! So, not only are the homeowners losing their homes or barely making payments, they are now paying twice on it, through taxes and the nice bank who loaned them the money.

If the government wants to bail someone out then it should be the God Damned people who pay them their salaries, the tax payer. If they paid all past due balances on these loans for the consumer there would be no more problem, but that is not even the problem to begin with. Remember, less than 10% of homes are in foreclosure, the problem is Wall St leveraged the securities up to 30 times their value, that’s the problem we have.

What will this bailout do? Simple, devalue the dollar even more driving up the cost of everything yet again. We have already printed over a trillion dollars for these folks and now we will be printing $700 billion more, which will ultimately grow to $1 trillion very soon. All the executives will still get their multi-million dollar pay packages and escape any legal recourse against them and business will continue as usual, except for you and I.

While Congress is pandering to their riches donors, both parties mind you, we are left holding the bag. Our taxes, regardless of who gets elected and regardless of how much you ears, will go up, it is unavoidable. The dollar will weaken and oil, natural gas, food and everything you buy to just survive will climb to record highs. All of this for what? A plan that will not work, it is that simple.

The current administration and the current Congress has gotten everything wrong for the past 2 years and the last 8 years have been a nightmare. This is not meant to be political to any party, it is just a general statement. This is our own fault, it is true, we keep electing these guys to represent us, but all they care about is re-election and who can they raise the most amount of money from, that isn’t us either, that is corporate America, and they represent these people not us.

If a company goes bankrupt they are forgiven all debts and obligations. That used to be true for ordinary Americans, but that changed in 2005. Thanks to major campaign contributors, the credit card companies and lending institutions – you know the same people who got us here – if an American goes bankrupt they still have to payback 40 – 60% of what they owe and it is more costly and cumbersome than ever. However, a corporation goes bankrupt and poof everything is taken care of and they can even get credit afterwards, go figure.

This legislation was passed by republicans and with key help from one of the “change” candidates, Joe Biden – who received a ton of money from MBIA where is son worked as a lobbyist – the bill passed and became law. This reform screwed the little guy, so ya go vote for change…neither candidate is for change by the way…designed by corporate America. The point is corporate America worked hard to screw us and now they want our help and we are giving it to them? We say no way, figure it out on your own, we have our own problems to worry about…like keeping our homes*.

If you are not outraged then you are not paying attention.

More Developing…

*We do not know anyone specific in this kind of trouble. However, given the gravity of the situation we thought it to be a fitting end of story comment. We are angry over this situation as the little guy is going to take a beating while the rich preserve their wealth. We spread blame equally among the ruling parties, Republican and Democrat as they are simply protecting their donors and not the American people. Some type of bailout is needed, but not to those who made the mess.

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Tags: 700 billion, bailout, bankrupt investment firms, congress bailout, economic bailout, government bailout, market collapse, sub-prime

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