Reckless Rescuepalooza Protects Failures and Frauds
The federal government’s Rescuepalooza has brought us to this: We are now pledging American tax dollars to bailout or beef up not just American banks, banks’ customers, automakers, insurance companies, homeowners who can’t pay their mortgages, and quasi-governmental mortgage firms. We are now rescuing other countries.
The Federal Reserve last week announced it would commit up to $30 billion each to Brazil, Mexico, South Korea, and Singapore so they can more easily swap their currencies for dollars. That came in a week that saw the Federal Reserve, Treasury, and Federal Deposit Insurance Corporation announce (singly or in combination) an astonishing amount of new spending, including:
(1) allocating money to accept up to $600 billion in liabilities on three million troubled home loans;
(2) possibly using taxpayers’ money to buy shares of U.S. automakers to funnel them another $25 billion on top of $25 billion the government pledged to loan them just a few weeks ago;
(3) another $21 billion for American International Group (AIG), on top of $38 billion the huge insurance company received from taxpayers last month, which came on top of $85 billion the government loaned in exchange for an 80 percent stake in the company just a few weeks before that; and
(4) a cut in the Fed’s benchmark interest rate to 1 percent, the lowest in 50 years and well below consumer price inflation, continuing the easy-money policies that helped cause the housing bubble that sparked the financial crisis.
This last point isn’t just my opinion. It’s what Congress’s own Joint Economic Committee just noted in a report analyzing the financial crisis, headlined “Government Policy Blunders Largely Caused the Global Financial Crisis”:
“Macroeconomic and microeconomic policy blunders by both the U.S. government and foreign governments inflated an unsustainable housing bubble in the United States and other developed economies. When this bubble inevitably popped, a global financial crisis ensued. … [I]ndividuals and firms could not have created and sustained such a large housing bubble over so long a time without major macroeconomic and microeconomic policy mistakes.”
Now President George W. Bush, Fed Chairman Ben Bernanke, Treasury Secretary Henry Paulson, and others inside the agencies and institutions that the congressional committee blames for causing the crisis want to add to those mistakes by throwing trillions of new dollars at select private corporations and homeowners who took out loans they cannot repay—more of the policies through which they caused the problems in the first place.
All of this has sent the projected federal budget for the new fiscal year to $1 trillion and skyrocketed the national debt to $11 trillion, up from about $7 trillion when Bush took office. This will be repaid through taxes and probably higher inflation that will reduce our standard of living.
Congress is saying nothing about all this. It’s the branch of government that’s supposed to decide government spending, but it stands aside while the Bush administration commits billions and billions of dollars to rescue this firm (AIG) and let that one (Lehman Brothers) fail and punish these homeowners (who are saving money and paying their mortgages on time) and reward those homeowners (who will get restructured mortgages and lower monthly payments).
No one in government has been willing to step forward to protect the great majority of people who act prudently and properly. Apparently the failures and frauds who run government sympathize only with their fellow failures and frauds outside the government.
Steve Stanek ([email protected]) is a research fellow at The Heartland Institute in Chicago.
Editor: The Joint Economic Committee report is here: http://www.house.gov/jec/Research%20Reports/2008/rr110-26%20doc.pdf