Why I oppose the bailout
Gary Loftis
September 30, 2008
"…banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale." --Thomas Jefferson
Today, Americans face an economic crisis that finds its roots in our own avarice. We have redefined "need" to be whatever we really want, and found a way -- credit -- to make it happen. A big-screen TV, a new BMW, the latest computer game … all are just a signature away. Why save up for something when we can enjoy it while "paying it off?"
The phenomenon is pervasive. Not long ago, I read that the average American has $10,000 or more in consumer (e.g., non-mortgage) debt. Assuming that there are 200 million adults, that means that individual debt amounts to staggering $2 trillion. And an increasing share of that debt is ending up in bankruptcy court, where it doesn´t go away but resides on the lender´s books until written off as a loss on their taxes … at which time all taxpayers pay it.
More insidious than consumer debt, however, is governmental debt, because of the quantity, because the "borrower" is so dispersed, and because those who incur the debt do so under the guise of need and with almost no accountability. Currently, our national debt is nearly $10 trillion and increasing at about $1 million every 3 seconds (see http://www.brillig.com/debt_clock/), which means that, added to individual consumer debt, every American adult is on the hook for $60,000!
Today, the Bush Administration and Congress are trying to cajole Americans into committing $700 billion to "fix" an economic problem that they created either knowingly or through incompetence. What this really means is "borrow another $700 billion to cover our tracks," because we are already borrowing to meet current expenses. I have three problems with their remedy.
First, I can´t remember -- and I can remember 50 years -- the last time a government estimate of cost for anything turned out to be even close to the actual cost. When I see an estimate of $700 billion, I automatically think $1.5 trillion. For 2008, the interest we are paying on the existing debt amounts to over $431 billion (http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm),. That means that, using the estimate of 200 million adults, the first $2,155 in taxes everyone pays goes to service interest on the national debt. Adding a trillion or more to the debt, regardless what it does for the banking industry, cannot be a good move for our nation.
My second issue is in accountability. The current banking crisis did not happen overnight, and it did not develop in secret. In fact, the very democrats who are eagerly blaming the current crisis on the Bush Administration, particularly Rep. Barney Franks, who chairs the House Baking Committee, fought in 2004 to prevent tighter oversight and regulation of Fannie Mae and Freddie Mac accounting and lending practices. But the democrats are not alone at the center of the blame game, because HUD and the Treasury Department were either asleep at the switch or criminally negligent for the past decade.
Something over 20 years ago, the 1986 Tax Reform Bill essentially eliminated an entire investment sector: limited commercial real estate partnerships. The result was a Savings and Loan collapse that required American taxpayers to shell out in the neighborhood of $200 billion to save the Federal Savings and Insurance Corporation. In the wake of that bailout, indignant congressmen and senators held hearings and called for criminal prosecution of anyone who could be linked to the collapse.
Today, we are asked to shell out a trillion or more dollars to save an industry that has collapsed under the weight of its own faulty practices with the complicity of the very people who are formulating the bailout. Where are the cries to indict Barney Frank, Chris Dodd, Maxine Waters, and Henry Paulson? Where is the arrest warrant for (former Fannie Mae CEO) Franklin Raines, who in 2004 assured the Congress that all was well in his organization? Where are the criminal indictments for the CEOs and CFOs who mismanaged the banks? In this bailout, everyone except the American taxpayers wins and the guilty pocket the profits.
Finally, the DC mafia (the Administration, Congress, and the media) is trying to sell this package to everyday Americans as though we haven´t a clue. They talk down, they cajole, they threaten, and they use the time-worn "This offer is only good for today" strategy. Americans are not completely stupid or naive, as the massive voter pressure on the house vote Monday demonstrated.
If something is badly broken, we should fix it, but we should do so in a careful, measured way that will fix the problem, prevent recurrence, and appropriately punish those who are responsible. Short of that, any "rescue" or "bailout" will be as effective as a bandaid on cancer.
© Copyright 2008, Gary Loftis. All Rights Reserved.
Today, Americans face an economic crisis that finds its roots in our own avarice. We have redefined "need" to be whatever we really want, and found a way -- credit -- to make it happen. A big-screen TV, a new BMW, the latest computer game … all are just a signature away. Why save up for something when we can enjoy it while "paying it off?"
The phenomenon is pervasive. Not long ago, I read that the average American has $10,000 or more in consumer (e.g., non-mortgage) debt. Assuming that there are 200 million adults, that means that individual debt amounts to staggering $2 trillion. And an increasing share of that debt is ending up in bankruptcy court, where it doesn´t go away but resides on the lender´s books until written off as a loss on their taxes … at which time all taxpayers pay it.
More insidious than consumer debt, however, is governmental debt, because of the quantity, because the "borrower" is so dispersed, and because those who incur the debt do so under the guise of need and with almost no accountability. Currently, our national debt is nearly $10 trillion and increasing at about $1 million every 3 seconds (see http://www.brillig.com/debt_clock/), which means that, added to individual consumer debt, every American adult is on the hook for $60,000!
Today, the Bush Administration and Congress are trying to cajole Americans into committing $700 billion to "fix" an economic problem that they created either knowingly or through incompetence. What this really means is "borrow another $700 billion to cover our tracks," because we are already borrowing to meet current expenses. I have three problems with their remedy.
First, I can´t remember -- and I can remember 50 years -- the last time a government estimate of cost for anything turned out to be even close to the actual cost. When I see an estimate of $700 billion, I automatically think $1.5 trillion. For 2008, the interest we are paying on the existing debt amounts to over $431 billion (http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm),. That means that, using the estimate of 200 million adults, the first $2,155 in taxes everyone pays goes to service interest on the national debt. Adding a trillion or more to the debt, regardless what it does for the banking industry, cannot be a good move for our nation.
My second issue is in accountability. The current banking crisis did not happen overnight, and it did not develop in secret. In fact, the very democrats who are eagerly blaming the current crisis on the Bush Administration, particularly Rep. Barney Franks, who chairs the House Baking Committee, fought in 2004 to prevent tighter oversight and regulation of Fannie Mae and Freddie Mac accounting and lending practices. But the democrats are not alone at the center of the blame game, because HUD and the Treasury Department were either asleep at the switch or criminally negligent for the past decade.
Something over 20 years ago, the 1986 Tax Reform Bill essentially eliminated an entire investment sector: limited commercial real estate partnerships. The result was a Savings and Loan collapse that required American taxpayers to shell out in the neighborhood of $200 billion to save the Federal Savings and Insurance Corporation. In the wake of that bailout, indignant congressmen and senators held hearings and called for criminal prosecution of anyone who could be linked to the collapse.
Today, we are asked to shell out a trillion or more dollars to save an industry that has collapsed under the weight of its own faulty practices with the complicity of the very people who are formulating the bailout. Where are the cries to indict Barney Frank, Chris Dodd, Maxine Waters, and Henry Paulson? Where is the arrest warrant for (former Fannie Mae CEO) Franklin Raines, who in 2004 assured the Congress that all was well in his organization? Where are the criminal indictments for the CEOs and CFOs who mismanaged the banks? In this bailout, everyone except the American taxpayers wins and the guilty pocket the profits.
Finally, the DC mafia (the Administration, Congress, and the media) is trying to sell this package to everyday Americans as though we haven´t a clue. They talk down, they cajole, they threaten, and they use the time-worn "This offer is only good for today" strategy. Americans are not completely stupid or naive, as the massive voter pressure on the house vote Monday demonstrated.
If something is badly broken, we should fix it, but we should do so in a careful, measured way that will fix the problem, prevent recurrence, and appropriately punish those who are responsible. Short of that, any "rescue" or "bailout" will be as effective as a bandaid on cancer.
© Copyright 2008, Gary Loftis. All Rights Reserved.