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Opinion
Sep. 26, 2008
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EDITORIAL: Bail me out

Public should be cynical, angry about $700 billion deal

Responsible voices have been warning for years that mortgage giants Fannie Mae and Freddie Mac held massive unwieldy portfolios of mortgages -- almost half the nation's mortgage debt -- while required to keep capital reserves of only 2.5 percent (compared to a normal bank's 10 percent), leaving them highly vulnerable to any reversal in real estate prices.

The big investment banks had also been allowed to buy and sell home mortgages, bundled up and sliced like sausages into "mortgage-backed derivatives."

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    • America's financial sector had become about as "diversified" as an investor with every penny plowed into Suzie's Online Massage Parlor.com.

    Yet House Financial Services Chairman Barney Frank, D-Mass., and others pooh-poohed such warnings. No urgency was seen on the Hill five years ago, two years ago, even last winter.

    Then, this hectic week, only a month away from a national election, when no member of Congress wants to be accused of "dragging his feet during a national emergency," suddenly Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and -- in a nationally televised address Wednesday evening -- even President George W. Bush are unanimously making noises about how there's no time to lose, pushing the pen into the congressional fingers and insisting that to "avoid a major recession" the 535 men and women normally known as the world's greatest "deliberative body" wait not a day, no time to waste.

    Even presidential candidates John McCain and Barack Obama are called in to lend their tacit support in a White House photo opportunity: "Sign here on a taxpayer loan to bail out poorly managed and mis-regulated financial institutions to the tune of -- we can only be approximate here, you understand, but about, oh ... sevenermillibillionders."

    "About what?"

    "About seven hundred billion dollars. Just a ballpark figure, you understand."

    "Is that billion with a 'B'?"

    "Just sign here."

    Early Thursday, Banking Chairman Sen. Chris Dodd, D-Conn., and Republican Sen. Bob Bennett, among others, said negotiators from Congress and the administration had arrived at a deal that could win approval, with little of note left to resolve.

    Under that deal, Congress would insist on some window dressing to create the impression members were driving a hard bargain -- doling out the money in "small" parcels of $100 billion here, $350 billion there; placing ceilings on executive compensation in the bailed-out banking firms, etc.

    But the end-zone celebrations appear to have been a tad premature. Later in the day, House Republicans led by Rep. Eric Cantor proposed an alternative plan calling for a mortgage-backed security insurance fund, rather than taxpayer-funded purchases of the securities. And a spokesman for House Republican Leader John Boehner complained the speed with which Sen. Dodd's plan was put together was designed "to deny Senator McCain a role in trying to craft a bipartisan solution."

    Regardless of the end result of these negotiations, it seems reasonably safe to predict four things:

    First, there will be some kind of bailout, and whatever price has been placed on it will prove too low. The precedent is the bailout of the savings and loan industry in the late 1980s, which ended up costing $160 billion -- back when that was real money.

    Second, printing up even $700 billion in greenbacks that the government doesn't now have will spur considerable devaluation of the dollars in every American's paycheck and bank account, chopping their buying power for years to come.

    Third, this will not be the last bailout. Detroit's auto firms have already visited Washington with their beggar's cup and won approval from the House. Who's next?

    But the final casualty will be much harder for accountants to tally on their calculators and yellow pads.

    The final cost will be the erosion -- if not outright extinguishing -- of the willingness of the American people to trust that their "leaders" in Washington can be trusted, that they have a firm grasp on such matters, that they're always gazing steely-eyed into the future, working in our best interest, telling us the truth about the long-term ramifications of what they're up to.

    Such a birth of renewed cynicism may be fully appropriate. But politicians may be surprised at where it now crops up -- at the kind of response they get next time they ask, "Don't you trust us?"



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    chip wrote on November 12, 2008 04:08 AM: IF GM, FORD GET GOV. BAIL OUT WE SHOULD ALL GIVE BACK OUR NEW TRUCKS AND CARS.PISS ON THEM.


    Louise Frank wrote on October 09, 2008 10:29 AM: Well lets see as I understand it, they want a $75,000.00 car, and a big ole house. They bought both and failed to meet the house notes, just made the car notes....and the rest of the taxpayers will forgive them and pay big time on the house they could not afford to start with!!!! Of course they did not bother to read - or care to read what they were signing - just wanted them no matter what--- I think I will now re finance my home I have struggled to pay off for 30 years,and get the big car with the money and charge to hell up the cadozoo on credit cards and borrow more on the house to pay that then let the taxpayers pay for all my excesses! Why not congress see's nothing wrong with paying the other's excessive life styles. Have several acquaintances that are loosing their homes cause of doing the above - not worrying about tomorrow just what they WANT today! Idiots of today want the best and not worry about the problems they might face in the future - The Government has made welfare bail outs look so good
    - it has spoiled the idiots. They see those working and earning and buying things and they think they are due it all whether they work or not - this is just another way of stealing from the people that spent sencibly and paid their bills and saved for future problems and cost of living expenses like me, over 68 years old worked since age 14, widowed and still working even though disabled. Now they tax my income and tax my social security income big time. I guess it is best for me to go ahead and retire -I might earn the $40,000.00 limit.


    Lawrence Hyde wrote on September 27, 2008 07:56 AM: I am adamantly against bailing out wall street and the financial institutions. Presumably they are responsible for getting into this mess so they should be responsible for getting out of it. Now if what some of what the media says is true and it is the government that caused it then the people in government should be responsible for it and not the tax payer.


    dlr wrote on September 27, 2008 02:26 AM: Call or email your congressman now. Give them a simple straight forward message: "You vote for this, I will vote for your opponent in November."


    snackler wrote on September 26, 2008 10:21 PM: With the bailout being so unpopular on main street, why would Obama and McCain both say some type of program is necessary?

    Aaron, Bubba, and Linkster do have it right. Instead of listening to hack journalists and bloggers with an axe to grind, go to Boomberg, AP, Reuters, Financial Times. Most can accessed through Google and Yahoo finance.

    This crisis was not caused by those few percent of what you "experts" call "stupid, ignornant" homebuyers. It is the financial engineering that Wall Street did with those mortgages that is the problem. Wall Street has used huge amounts of borrowed money to game the system and it is now coming back to haunt them. The credit markets are scared to death and afraid to lend, waiting for the next bank to be pushed over by the gamers who make fortunes when institutions and markets go bust.

    Instead of doing your homework you experts gloat about those people losing their homes. Maybe they were stupid or duped, but while you sit in your nice air conditioned home venting with a drink in hand and food in the fridge, those foreclosed people are now on the street. Literally. Why is it that you hate them so much?


    I just got WAMUed wrote on September 26, 2008 09:51 PM: Washington Mutual's new CEO Alan Fishman -- who had been on the job a measly 17 days -- was paid nearly $20 million in the last month.

    That includes a $7.5 million bonus when he was hired Sept. 8. And it includes a mind-blowing $11.6 million cash severance now that the company has gone under. That's on top of his base salary -- a cool $1 million a year. Plus, he was eligible for annual bonuses worth up to 365 percent of his base pay.

    All this while the company was posting billions in losses. (Yesterday, it became the biggest bank failure in U.S. history, as it was seized by the federal government and then sold off, in part, to JP Morgan Chase.)

    Read over all that again -- and explain to me why something doesn't need to be done about CEO compensation.


    Community Reinvestment ("redistribution") Act wrote on September 26, 2008 06:17 PM: The Community Reinvestment Act (CRA) was established by Congress in 1977. The Act requires that deposit-taking financial institutions offer equal access to lending, investment and services to all those in an institution's geographic assessment area-at least three to five miles from each branch. In the case of large banks with many branches, the geographic area may encompass an entire county or even a state.

    Before the CRA, many bankers excluded low-income neighborhoods and people of color from their lending products, investments, and financial services - a practice known as "redlining". Community activists coined the term when they discovered that the failure of banks to make loans in some low-income neighborhoods was so geographically distinct, that it was easy to draw red lines on maps to delineate the practices.

    In the 1970s, activists in Chicago and across the country brought strong pressure on banks to lend equitably to all those in their communities. Since its passage, the CRA has been used across the United States to win tens of billions of dollars in new lending, investments, and services for communities. The National Community Reinvestment Coalition tracks more than $1 trillion dollars in community reinvestment pledges nationally. These pledges are explicit investments in equitable development goals, and finance many tools.

    source:
    http://www.policylink.org/EDTK/CRA/


    Joe America wrote on September 26, 2008 06:15 PM: Acorn Lobbyist- abuses against taxpayers? Please share more info! That does not surprise me.

    Acorn and Naca.com argue that everyone is entitled to a mortgage and at low rate despite their risk. This thinking goes against business fundamentals that RATE is based on RISK (e.g., mortgage rates, insurance premiums etc). Since the '70s, the Community Reinvestmet Act forced banks to give TRILLIONS to crying blacks. I am not a racist or bigot for presenting facts: http://www.policylink.org/EDTK/CRA/

    No more bailouts (amnesty, welfare, handouts, breaks) for minorities since the 70s, then illegals since the 90s, and now banks! Who pays for these bailouts/handouts?

    Sincerely,

    Joe America


    Foreclosure Limit wrote on September 26, 2008 05:59 PM: Jen- if you think a bit deeper, you will realize that banks cannot foreclose much more. Upon foreclosure, the banks must list the home to find buyers. They will essentially (in many cases) be selling to persons similar to who they foreclosed on lol! In otherwords, foreclosure has its limit. Banks will be forced to modify. Anyone disagree?


    End of the World BS wrote on September 26, 2008 05:32 PM: Linkster- the world is not going to end without what you label as a "rescue" (and what you say is actually an opportunity for taxpayers).

    There will still be lending and credit, but on a responsible scale. Do you really think lending would stop?!! No. Besides, Americas need to learn how to SAVE a bit and be smart. A debtor nation is not a strong nation.


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