America’s trillion-dollar bailout of its incompetent bankers represents 8% of the country’s Gross Domestic Product. It’s larger than the annual Defense budget. It’s larger than the annual Education budget. The mounting national debt will starve the government and prevent future administrations from creating or executing social programs like Head Start or Social Security. The fat cats have made billions, and the government is going broke to protect them from the consequences of their irresponsibility.
But the taxpayers haven’t seen anything yet: the bailout package is a tremendous can of worms, and it will not be enough.
It will not be enough because the “assets” being purchased are untenable. Taxpayers will be buying homes in Phoenix, Riverside, Las Vegas and other suburban outposts that have been built on a foundation of cheap energy. But the era of cheap energy is over. The government is going to own a lot of real estate in unviable communities. Bad investment.
It will not be enough because the assistance is going to the wrong people. The giant banks that made enormous long-term blunders while raking in short-term profits deserve to go bankrupt. Are the chairmen of Bear Stearns, Lehman Brothers, Merrill Lynch, AIG, Fannie Mae or Freddie Mac losing their homes? “Lifestyles of the Rich & Famous” can be re-launched as “Your Tax Dollars at Work”
It will not be enough because the fat cats we let off the hook today will be at it again tomorrow, competing with the government in a marketplace where those fat cats have the advantage of total ruthlessness. Sure, they will sell their loans to the government cheap today, but they will buy the best assets back even cheaper tomorrow.
It will not be enough because the infection of irresponsibility will spread. Responsible people are tired of feeling like suckers for paying their bills while neighbors and Wall Street tycoons experience only positive consequences for their irresponsible actions. If I’m paying my mortgage and my neighbors are not, the disincentive grows every month. This bailout could make the default problem worse.
It will not be enough because the government has no idea what it’s getting into. The government is going into the bad loan business. Will the government take the next step and go into the eviction business? Does the government want to go into the eviction business? Should our government be in the eviction business?
If the government/taxpayer must bail out the economy, we should do so by empowering regional and local banks to refinance bad loans based on their actual knowledge of the asset value. This strengthens a diversified banking system and helps responsible people stay in their homes without excessive moral hazard.
Candidates John McCain and Barak Obama have taken a lot of heat in the press this month for not understanding the economy. I hasten to point out that economic experts got us into this mess in the first place, and now they want people who “don’t get it” to bail them out so they can do it again.