As the American government debates how exactly to serve Wall Street its ¾ trillion dollar meal of “cash brulee a la taxpayer”, and my email inbox fills up with questions from friends and readers on the issue, it seems like a good time to explain this clusterhug of epic proportions, in the simplest of terms:
1) Who’s fault is it? Mainly yours, actually. That is, if you live off credit, buy things you can’t afford like a house mortgaged to the hilt rather than renting, and generally believe that you’re entitled to the “American dream” and will worry about paying for it later. Ironically, perhaps the best reason not to have this abomination in corporate welfare pass is that you won’t be able to get any more credit and will actually have to start living responsibly within your means — which you probably haven’t done since your parents gave you a $5/week allowance. As President Bush said in his address to the nation this week: “Many borrowers took out loans larger than they could afford…”
2) Where were Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke before all hell broke loose? Good question. Either they knew what was coming down the pipe with all the affirmative action mortgages the Clinton administration strong-armed banks to greenlighting, and didn’t do anything, or they were blindsided. Either way, they should be replaced by someone more competent — like Trig Palin.
3) Will this stimulus package work? Didn’t we just have one of these to the tune of $150 billion in January? Yeah, that worked – obviously. And this one will probably work just as well. This one has the potential to lead to the mother of all Vegas hangovers — not only waking up with a massive headache, but also knowing that you’ve blown $700 billion more dollars on a gamble.
4) What if these companies were allowed to go bankrupt? It’s called “cleaning house”, and it’s a fact of the free market. Beats having the government play “Weekend at Bernie’s” with these institutions. As President Bush explained, every American is insured by the FDIC for $100,000 per account — so if their bank gets into trouble, it won’t affect the average working person. If you invested in the stock market, then that’s the gamble you implicitly agreed to take. As was the case in Canada when corporate giant Nortel imploded spectacularly, it was simply allowed to happen and everyone moved on as executives were criminally charged.
5) President Bush said in his address last night that this economic bubble allowed entrepreneurs to “get loans to start new businesses and create jobs.” Right. And that’s not how you start a new business . Face it — chances are you’re closer to the average lemonade stand operator than you are to Bill Gates. So govern yourself accordingly and preferably free of delusions, and we’ll all be better off. As any responsible entrepreneur knows, you do it organically — growing it slowly and investing what you can afford — not by taking out a huge loan and running up a debt. If your idea is truly viable and valuable, then you can get funding from venture capitalists or angel investors. The government can help by not taxing new businesses to death and permitting more liberal write-offs.
6) What kind of message does this bailout send? In the same way that you can’t have open immigration and a welfare state, you can’t have a free market and corporate welfare. Businesses will believe that if they get big enough and behave recklessly enough, then they just might get rewarded. It encourages epic screw-ups and zero accountability. It also lets Communist countries like Russia, China, Cuba and Venezuela know that despite your strong words about Capitalism, you really don’t have any faith in our system. If you did, you’d back off and trust in it.
7) Is it because of the war that all this is happening? No Mahmoud Ahmadinejad, this has nothing to do with the War in Iraq. This isn’t about the government bailing out itself – it’s the government bailing out private and private-public corporations as a result of everyone behaving recklessly here in America. If anything, the defense industry gives back much of what’s injected into it, in the form of technological innovation such as cancer treatment technology, the vision correction laser, etc. And that’s not counting the money saved in preventing another 9/11 style attack on U.S. soil — partly by keeping terrorists busy on their own turf in the Mideast.
8) What’s the deal with Fannie Mae and Freddie Mac? As President Bush said: “Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk.” Do we really need any more reason to see these two entities evaporate? Cradle-to — grave government benefits for these companies is contrary to a free-market philosophy and tilts the playing field — the problems with which should now be glaringly evident.
9) What should we be insisting upon with this bailout? You mean, other than requesting that it not happen at all, despite all the fear mongering? Well, I’d like to see oversight that consists of a website detailing every cent spent — particularly on executive salaries. If it was up to me, these incompetents wouldn’t get a dime. So if they do get more than that, I want to know exactly how much of a blatant wealth transfer from average, hardworking people to pencil-pushing pinheads we’re dealing with.