Bailout of Financial Institutions Rewards Risky and Greedy Investments by Big Business
The proposed bailout of failing financial institutions has the Republican and Democrat Parties looking like they are about to switch roles again as they did at the turn of the last century. In a sweeping move toward socialism, our Republican president, his Treasury Secretary Henry Paulson, and Republican Congressional leadership are leading efforts to try and push through the largest bailout of big business since the Great Depression. The Bush administration additionally wanted to exempt executives making millions of dollars a year from any ramifications, allowing them to continue to receive their gargantuan salaries – paid for by the taxpayers. Democrats in Congress rejected that provision. A bipartisan Congressional plan was crafted over the weekend to provide certain preferred failing financial institutions with $700 billion in taxpayer funds. The bill was vetoed by the House yesterday, but it could return.
Over the past eight years while Bush has been in office, Republicans have gradually became disgruntled with him as government spending increased at alarming levels – the biggest increases in history. This final slap in the face dramatically increasing spending and government regulation in the free market is the last straw for many Republicans, who wonder what happened to the conservative principles Bush ran for office on.
Let’s take a look at how we got to this crisis. Lenders like Fannie Mae and Freddie Mac chose to give loans to high-risk consumers; borrowers they knew were likely to default. 15% of their total mortgages went to “Alt-A†and subprime loans. They calculated that the government would bail them out if the homeowners defaulted. In 2004, Freddie Mac’s Chief Risk Officer wrote a memo warning the company that its problematic loans were endangering the company, but it was ignored. Like other financial institutions suffering collapse currently, Fannie Mae and Freddie Mac are now under investigation for misleading investors about their assets and pushing agencies to inflate their ratings. Last year, Freddie Mac was charged with securities fraud, resulting in its executives paying hundreds of thousands of dollars in fines and restitution.
There is talk of a “growing credit crisis†requiring this bailout. Do you see your friends losing their homes and going bankrupt? There is a relatively small number of people across the country going into foreclosure as a result of taking on mortgages they could not afford. Many of the homes going into foreclosure are owned by investors who made unwise decisions.
There is a prevailing liberal mentality that everyone in America is entitled to own a home. This entitlement attitude is what helped lead to this collapse. The vast majority of people around the world cannot afford to own their own home, and in third world countries are lucky if they even have a place to live with the amenities we expect in the western world. It’s unrealistic to expect every American to own their own home when there are millions of people elsewhere who would be grateful just for an apartment with working facilities.
As for the financial institutions, let them fail – another financial institution will buy them out, as always happens when a company goes under. Bank of America is currently making plans to buy out Countywide Financial, another lender which gambled in risky subprime loans. What is so wrong with allowing the wealthy banks and their shareholders to suffer the consequences of their poor investments? Isn’t the whole point of the stock market the risk of losing money in a gamble? According to Rep. Kay Granger, R-Texas, she is receiving hundreds of calls from constituents saying things like, “We pay our bills. Why can’t Wall Street pay theirs?†An overwhelming majority of Americans oppose the bailout. Sen. Bob Corker, R-Tenn., said that of 3,500 calls his office has received on the bailout, only 95 said they support it.
Why did the government decide to bail out AIG, an insurance company, but not Lehman Brothers, a bank that has been in business for over one hundred years? AIG is currently being investigated by the FBI for fraud, for overvaluing its Alt-A and subprime mortgage-backed securities. Milton Friedman once wrote, and current Federal Reserve Chairman Ben Bernanke agrees, that the Great Depression was caused by the Federal Reserve’s manipulation of money – choosing to aid certain banks over others. This is strikingly similar to what we’re seeing proposed today – having the government bail out certain mammoth financial institutions but not others.
Democrats are scrambling to get Republicans to vote with them for the bailout, hoping for cover when the voters realize down the road that it was a bad idea. Democrats know the bailout isn’t going to do any good, but when the economy inevitably rebounds, they can point to the bailout as the reason why and take credit.
President Bush said in a speech to the American public this week that the bailout wasn’t just about helping big business, but was necessary to help out families affected by the big firms’ losses. This is a false dichotomy, since it assumes there aren’t other resources available to help out homeowners in danger of foreclosure. In reality, today there are plenty of consumer credit programs, churches, charities, and solid lending institutions willing to step in on a micro or macro level to ameliorate the losses.
Now we’re finding out that the bill includes a clause that directs 20% of any profits from the bailout into a Democrat slush fund – the “Housing Trust Fund†which funds such groups as the anti-American National Council of La Raza and ACORN, considered by many to be the most corrupt voting registration organization in the country.
Rep. Mike Pence from Indiana and Sen. Richard Shelby from Alabama are two of the House Republicans leading the opposition to the bailout. Former Speaker of the House Newt Gingrich is also speaking out, suggesting that a loan instead of a flat giveaway would be better. Gingrich has called for Paulson’s resignation. Rep. Ron Paul is all over the airwaves saying “I told you so.†According to WorldNetDaily, at least 165 economists have signed a letter addressed to Congress warning of pitfalls in the bailout plan, regarding its fairness, ambiguity, and long-term effects. We can only hope that cooler heads in the Republican Party, perhaps McCain, prevail and Congress backs off from this foolish plan. The economy always rebounds in a free market society – it was government that caused the Great Depression.
Rachel Alexander and her brother Andrew are co-Editors of Intellectual Conservative. Rachel practices law in Phoenix, Arizona and blogs for GOPUSA.com.
| More from Rachel Alexander
Stumble It!
September 30th, 2008 at 12:22 pm
GW Bush, like his father, wants to loved for his compromising. They are strong on defense and kind and loving at home. If thieves show up at your door and demand everything; they’ll compromise and give half to the thieves. What happens the second and third time the thieves show up? Note in this article how the Great Depression was caused by the arbitrarily authority of NY Federal Reserve Bank (under Morgan who profited greatly and destroyed his rivals) to bail out banks. Research Milton Friedman for further explanation.
October 1st, 2008 at 1:40 pm
Very well written article.
I am concerned of this bit though.
**** – it was government that caused the Great Depression.****
I am not sure that the government created the great depression.
But here is an enjoyable thread discussing it that you might like.
http://tinyurl.com/4cggct
It is a basketball site. Nice to see so may sports players and fans with brains.