If you haven’t been watching the news, listening to the radio, or reading a newspaper lately, you may not have heard; apparently, the United States economy just jumped off a cliff. Suddenly, all those banks, private investment firms and large mortgage companies stopped making boatloads of money and found out all that the money they were making wasn’t really there. To put it another way, they kind of got a bit of their own medicine; ironically, just like the subprime mortgages they were selling to customers, the deals turned out to be too good to be true.
Now all those companies find themselves in one of three positions. Scenario one: they failed and either went bankrupt or were bought out. Scenario two: they are in big, big trouble and are worried they are about to become obsolete dinosaurs. Scenario three: they were the smart ones who either got out just in time to avoid the worst part of this mess, or never got too involved in subprime loans and are either buying the failing companies or trying to avoid getting touched by any of their toxic death. Unfortunately, for everyone involved at all with these companies, even the Scenario three crowd is saying everyone will be affected by their toxic death unless congress does something.
And by something, these companies mean give them money, a whole bunch of money, as in about 23 percent of our nation’s total budget. Now, granted, this number is if you don’t include discretionary spending (as if anything in this category is actually “discretionary”). By discretionary, we can be made to think of other endeavors like the Iraq war, special emergency spending like relief funds for natural disaster victims, and other ‘discretions’ like that. Including those numbers, the money the banks are asking for is roughly 20 percent of our nation’s budget. Now that seems like a huge amount, but in reality it is little compared to the trillions in debt we have already essentially bought from when the government bailed out AIG, and assumed control of Fanny Mae and Freddy Mac over the last few weeks.
Yet these banks say they still need a bunch more money to keep all of us from paying the price for them acting like a bunch of spoiled first graders. In response the Bush administration and their Secretary of the Treasury Henry Paulson, a former chairman of the now-failing Goldman Sachs, and Federal reserve chairman Ben Bernanke have teamed up to propose a plan where we create a government body headed by Secretary Paulson.
That body will have a budget of $700 billion and a mandate to buy up bad toxic debts from these banks and investment firms. This group will then try to work on these bad debit packages. They will try to refinance the mortgages so the homeowners can pay for them and therefore make the mortgage viable, and then sell the mortgages when they are no longer toxic. At worst, they will simply buy these packages and the taxpayer will absorb the loss. But, the $700 billion figure is misleading. The $700 billion is this group’s play money; they can buy mortgages, sell them and then buy more. So the amount of debt that will be moved around is most likely going to be much larger. Most outside estimates start at a trillion and go up from there. Plus, we all know how the government bureaucracy likes to ask for more money.
The intriguing part of this plan is, as always the government bailout is for the banks. It insures they are able to pay for their bad debts and keeps them afloat. This is a very similar repeat to the savings and loans scandal and market crash in the late 80’s. We de-regulate the banking and investment industry then come back in and bail them out when they get greedy and screw up the economy. What is intriguing me is these bailout plans are always aimed at saving and protecting large wealthy companies. Why do they never start with saving people? We are always told if we don’t act the average Americans will be hurt much worse by the repercussions.
But, what if the government took this $700 billion and instead of buying up all the bad debt from these companies they instead went around and helped people with subprime loans make their mortgage payment. Or what if we took it a step further and forced banks to refinance these subprime loans into more fair loans, slashing rates, eliminating obscene fees and then helping the individual make their payments.
What would happen if congress and lawmakers made sure American taxpayers who were taken advantage of and not the banks and investment companies that unscrupulously pursued money without any morals or regard for the affects of their actions? Imagine the economic impact of a few million Americans having their mortgage paid for one year, or having their monthly payment reduced by 30 percent.
Of course, this will never happen because these are poor Americans we are talking about. They don’t make enough money to hire lobbyists and contribute to campaigns. So of course, they won’t be the ones considered in this plan. Instead, they will focus on making sure banks and investment firms get their money and are able to stay afloat. People will continue to be foreclosed on and average Americans will still feel the squeeze while banks are thrown a lifeline and made sure their lives aren’t interrupted.
So when you listen to the president speak about the need to act, and Senator McCain try and posture as if he saved this deal ( a notion which no one else seems to agree with), while Obama talks about protections for taxpayers, just remember one very important detail. None of these seemingly concerned men wanted to give the money to you. They wanted to give the money to people who caused the problem, not the embattered ones suffering from it.
Ted Trevorrow is a fourth-year student majoring in English. He can be reached at ET666499@wcupa.edu.