Tuesday, September 30, 2008
We Get Letters
Another letter I received, with names redacted to protect the innocent.
'...Hello to you all,
Like many in our country this morning, I am extremely upset over this obscene bailout of the financial markets. The President and the Secretary of the Treasury have made the case that failure to rescue AIG and others with $700 billion will result in extreme hardships for thousands, maybe millions, of homeowners and investors. I am inclined to agree that we really have no choice, but I am very angry that not one word has been said about how the government is going to come up with the money! I have to assume that it will pay for it just like it has been paying for the wars in Afghanistan and Iraq: by running up the National Debt. There has been some mention of the debt going up to $11.5 trillion.
Wait just a minute! This giant credit card the Congress is using has got to have a limit and now! If you think the consequences of not bailing out AIG are bad, do you have any idea of how bad things are going to get if Japan, China and foreign banks start worrying about the safety of the U.S. Treasury bills and stop buying them? That will quickly dry up almost all credit. This nation RUNS ON CREDIT! The result is going to be worse than the great depression.
The ONLY right thing to do is for Congress to start being honest with tax payers and tell them that this $700 billion MUST be paid for with severe cuts in programs and increased taxes. So they don't get re-elected? They have to do the right thing!
Finally, why am I so alone in saying this? I would think that there would be millions or our children and grandchildren protesting all over this nation against the huge debt that my generation is selfishly straddling them with...'
Apparently there are many congressman (as well as myself) that do agree with you. Sadly, we got into this crazy mess by turning over our financial system to a bunch of lunatics, and deciding not to regulate it. It's important to remember that the banks which didn't invest in mortgage securities are doing fine. It's the ones that dove in head first into that new and unregulated industry that are sinking the ship. There's a good explanation (with some off-color language) at the SubPrime Primer.
I would agree with you that in an ideal world, people would be protesting much more over this mess. Actually in my ideal world, there would be millions of people with pitchforks and torches heading to the canyons of , the White House and the suburban lawns of Greenwich, Connecticut right now. Pillory stocks would be set up, with ample supplies of tomatoes, rotten lettuce and horse apples provided for the populace to hurl at the immoral drek that caused this mess.
Of course, that wont happen. And one of the main reasons, aside from an overall lack of understanding of how this mess came about (securitizing debt is a complex thing to understand), is that this mess really hasn't effected our economy just yet. Massive layoffs haven't occurred, and beer is still cheap and plentiful. Most people are pretty comfortable with their lot, which granted says a lot more about mankinds' unique capacity for self-delusion than anything else.
Still, if nothing's done about this, then the economy may very well be badly effected. And it's sadly true that in the end, the taxpayer funded government is going to have to step in to solve this mess. There are of course many ways to do that. One can buy the crappy securities (as the bailout bill proposes), or insure them (as the House Republicans want to do). But those aren't the only options. Since the securities that are the source of this problem are based on mortgages owned by families, one could set up a program to deal with the mortgages directly, rather than with the securities owned by . Fix the families' mortgages and the securities will stabilize. It would take time for the results to 'trickle up' but this is all a mess based primarily on a lack of confidence. Ensure confidence in the base of the mortgage securities, and the crisis should resolve itself pretty quickly.
The alternative is the proposed top-down bailout of the mortgage securities, which should never have existed in the first place in such an unregulated way. Support those through a bailout and ultimately you are just putting off the problem.