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Why were Fannie and Freddie too big to fail and twenty-eight thousand business too small to succeed in 2007?

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Too Small To Succeed

Why were Fannie and Freddie too big to fail and twenty-eight thousand business too small to succeed in 2007?

"Failure is only the opportunity to more intelligently begin again."– Henry Ford, founder Ford Motor Company

Perhaps General Motors and the United States Congress should consider these words before American taxpayers are required to unknowingly borrow money from Japan and China to pay for the next bailout. It is doubtful that the American people know that, in recent times, they have agreed to loan $4 billion to repair abandoned homes that have no occupants and offer an $85 billion lifeline to rescue an insurance company. There is apparently an overwhelming sense of entitlement inside the Congress that has not been embraced by the American people. The American people certainly sympathize with the victims of hurricane Katrina but emphatically do not understand how the federal government can spend, at conservative estimates, $150 billion and still leave thousands of people displaced.

This year alone, the taxpayers have truly become the Bank of Failing Big Business with loans to Fannie Mae and Freddie Mac ($200 billion); Federal Housing Administration ($300 billion) and JP Morgan Chase & Company ($100+ billion). Now, Detroit auto manufacturers are standing on the corner with their tin cups requesting $40 billion because they failed to prepare for the energy crisis and manufactured too many SUVs. American-based automotive companies want the American people to be generous and bail them out, but they have no plans to return the favor by reducing the price of automobiles. Instead, they plan to build smaller, more expensive cars. On Thursday, the House Republican Study Committee circulated a letter calling for the end of all bailouts. Let’s hope that, unlike AIG Insurance, Detroit gets the stiff arm.

Eliminating corporate bailouts is a start, but eliminating the mentality in Washington that some companies are too big to fail, or that some catastrophes are too big for the government not to address with billions of dollars in spending, is the only solution to an out-of-control national debt. At the risk of sounding insensitive, the federal taxpayers have no business in repairing individual homes after a hurricane. That is the role of private insurance.

In 2007, there were over 530,000 structure fires, resulting in over $10.6 billion in property damage, 3,000 civilian deaths and more than 15,000 injuries. I guarantee that, excluding something similar to a massive forest fire, not one of these incidents received even an honorable mention on the Senate or House floors.

In 2007, more than 28,000 small businesses failed. That number was up nearly 9,000 from 2006. Again, if you scan the speeches made on the House and Senate floors, these failures will not be documented.

Notwithstanding activity, or the lack thereof, on Congressional floors, a lost home, lost life or lost business has substantial impact on the individuals or families suffering a loss. These individuals could use a helping hand, but no Senator or Congressman is there with outstretched arms. That’s not the Washington mentality. The family farmer, the one-man travel agency that lost everything after 9/11 — they’re viewed by the Washington establishment as too small to succeed. The single mom who loses her home in a fire — she better have insurance because helping her out in Washington does not attract enough headlines. Her story is too small to help a Congressional Member succeed.

Our national tradition has always been to help our fellow Americans, but our tradition has also recognized that not every story is a success – just ask Benjamin Franklin. If we’re going to continue the corporate bailouts and throwing billions of dollars into every disaster, we should not make America a discriminatory nation — the federal government should insure every home that is destroyed in an accident or disaster and be the security blanket for every small business. We won’t see this happening, nor would it be a desirable outcome, but it is difficult to understand why Fannie and Freddie are too big to fail, and why, at least in 2007, twenty-eight thousand business were too small to succeed.

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Written By

Mr. Smith is the Executive Director of wsmith.org. His previous experience includes serving as a litigation defense attorney at Starnes & Atchison LLP in Birmingham Alabama and as Chief Counsel to Senator Sessions on the Judiciary Committee, United States Senate.

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