Note: I wrote this over two weeks before you’ll see it in the paper, so whatever is going to be done has likely already been done; in other words, it’s all over but the shouting.
So, yeah – plenty of blame to go around on the credit crisis issue, just as I mentioned last week. Please don’t make me repeat myself, I get a headache.
Among other things mentioned before, we know that the top officials of Fannie Mae and Freddie Mac, just like the CEO’s of many corporations at the time, pocketed hundreds of millions of dollars worth of bonuses. If these guys were such hot-shots, they should have seen what was going on.
As for G.W. Bush? Well, maybe he should have listened to a fellow named Peter Wallison, who predicted that “If (Fannie Mae and Freddie Mac) fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”
Except Bush wasn’t President when Wallison said that: It was 1999.
In that same year the New York Times said, “By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less than stellar credit ratings.” That pretty much says it all, as far as what went wrong. Loan requirements were lowered on purpose. The underlying cause of this entire current crisis comes down to the “subprime and junk” mortgages bought by Fannie and Freddie, who are not characters on “Scooby Doo”, and the market for those mortgages that resulted. Lots of people to blame.
Gee, I just put the whole thing into one paragraph. I didn’t need to write my previous column at all – how will you ever forgive me?
So, what are we going to do about it? I thought you’d never ask.
I don’t know.
See, here’s the problem: If we don’t do the bailout, credit will continue to dry up until there’s none to speak of, which will result in an economic crash all too similar to what happened in 1929 – at least, as far as its effect on the nation. For those of you who don’t remember, the 30’s weren’t fun times.
But if we do do the bailout – and doo doo may very well be the operative term, here – I have no confidence that it will do anything except delay the inevitable. We were due for an economic downturn, anyway; in fact, the unusual period of relative economic good times, interrupted by only a couple of minor dips, was getting more and more artificial. In other words, the bubble burst.
It may be there’s no way to prevent a bad recession; the best we can hope for is to lessen its effects. So, is sending good money after bad just going to make things worse in the long run? After all, what’s basically happening is that the federal government will take over a lot of bad loans, with the idea of collecting the money and someday turning the business over to private enterprise again.
Now, reread that last sentence.
Various government officials say this won’t cost the taxpayers, because the loans will eventually be paid off, and then the government will simply get out of the loan business. But they’re bad loans. The whole reason this mess started is because they couldn’t get paid off. Besides, how often does the government give up power once it’s attained?
I’m sorry, I’m afraid I’m mucking this up horribly by being too simplistic; it’s a complicated business, but bad loans remain the bottom line. What I’m trying to get at is that all those reassurances that the taxpayer won’t foot the bill are worthless. However, if we don’t do something everyone will suffer: The poor people who only wanted to own their own home; the short sighted who used their home equity to buy luxuries they really couldn’t afford; the employers who depend on credit; their employees; and the worldwide economy as a whole, which means all of us. (A week after I wrote this, Iceland went bankrupt. Well, for all intents.)
It seems we’re running out of options.
So, when I’m elected President (which should happen any minute now), I’m going to ask for the following restrictions and additions to be put on any bailout bill:
FDIC will increase its insurance guarantee from $100,000 to $250,000, so people with more than a hundred thousand bucks in the bank won’t be tempted to make a run to pull their dough out. I don’t have the slightest notion what it feels like to have that much cash in the bank, but I’d like to find out someday.
The salaries of all management employees in any company taken over by the government will be reduced to the normal rate paid for a civil service employee. If management wants a bonus, they can make their company profitable again. If they make their company profitable, no bonuses will be given out until all the taxpayer money that went into the company is paid back to the government. Any money paid back will go toward the national debt.
No CEO of any company that received a federal bailout will get a dime until he gets his company back on track. I’m talking not even a salary; they can live in an efficiency apartment on ramen noodles and take a part time job, just like a lot of regular people have to.
A small user fee will be put on each and every Wall Street transaction, to go toward paying off the bailout.
Each and every taxpayer will become a protected shareholder in the companies. In other words, there will be a guarantee that if the companies start making money and some fat cat manages to keep it from going toward the debt, the taxpayers will get their money back by sharing in the profit – but will have no risk of further losses.
Any politician who again suggests arm-bending banks into making unsecured loans to people who can’t afford to pay them back will be taken behind the Capital Building and summarily shot.
Don’t think for a second I’m not serious about that last one.