In last night’s speech President Bush said “major financial institutions have teetered on the edge of collapse and some have failed. Many banks have restricted lending. Credit markets have frozen. And families and businesses have found it harder to borrow money. We’re in the midst of a serious financial crisis.” The president declared “irresponsible actions” caused “wide-spread loss of confidence.”
Despite his low poll numbers, despite his lack of political capital, President Bush had no choice but to address the nation because bipartisan opposition to his proposal has seized Capitol Hill. The crisis has been building for over a decade and came to a head last week when lending houses closed and the markets fell. Bush himself announced reservations toward Fannie Mae and Freddie Mac’s sub-prime housing loans back in 2001. In 2005 Senator John McCain warned that Fannie and Freddie needed reform: “If Congress does not act American taxpayers will be exposed to the enormous risks that Fannie Mae and Freddie Mac pose” to the economy. Nothing was done to stop the flow of cheap money into the hands of people borrowing what they could not pay back.
Bush blamed low interest rates for generating an excess flow of money and credit: “Easy credit, combined with the faulty assumption that home values would continue to rise, led to excesses and bad decisions. Many mortgage lenders approved loans for borrowers without carefully examining their ability to pay. Many borrowers took out loans larger than they could afford, assuming that they could sell or refinance their homes at a higher price later on.”
Bush stated too many people “took out loans larger than they could afford,” triggering the housing crisis. Blame for the economic failure was placed on Fannie Mae, Freddie Mac and Wall Street CEO’s who purposely drove stocks down in order to make profits for themselves.
The president stated he is working with Congress to adopt a plan that will “address the root cause behind much of the instability in our markets.” But the plan has fine print that does not work. The $700 billion dollar bail-out package is intended to buy up 5% (5% of the GDP) of all outstanding loans and mortgage securities by “supply[ing] urgently-needed money so banks and other financial institutions can avoid collapse and resume lending.” It is the lending that caused the instability in the first place, and the 5% could run up a $1 trillion dollar federal deficit.
The $700 billion is meant to improve the overall economy with a boost of collateral, but according to Bush, taxpayers will foot the bill for what the federal government and lending houses caused. Though reluctant to place the burden on the people, Bush said he must in order to prevent an economic crash. There is also the matter of $500 billion dollars shipped overseas: that money should remain in the U.S; it should be spent on the U.S. economy.
Another problem with the $700 billion is buying back assets above their value will enrich some while not enriching others. Their will be a golden parachute for few. Then there are the oversight watchdogs placing restrictions on “all companies across the financial spectrum.” That further places Congress in charge of Wall Street and Main Street. Congress is guilty for the economic failure; they knew what lending houses were doing and turned a blind eye; many on the Hill took money from Fannie Mae and Freddie Mac - Obama, Chris Dodd, Chuck Schumer, Bill Clinton, Janet Reno, and Barney Franks to name a few.
It’s time to run the foxes out of the henhouse.
The plan is not yet set into motion. The president will meet with leaders in both parties, including Obama and McCain, to discuss the package and iron out details before anything is signed and sealed. It is not yet known what John McCain will suggest. He is against the $700 billion because taxpayers will foot the bill. Obama is on board with the package.
In the end this crisis may prove that a no-earmarks president is the right choice for the nation.
