|
U. Massachusetts: Column: Congress and the economic crisis
(U-Wire Via Acquire Media NewsEdge)
UWIRE-09/23/2008-U. Massachusetts: Column: Congress and the economic
crisis (C) 2008 Massachusetts Daily Collegian via UWIRE
By Scott Harris, Massachusetts Daily Collegian (U. Massachusetts)
AMHERST, Mass. -- If you think that what is going on in the financial
markets does not affect you because you are not invested in anything or
"just a college student" or whatever, you are wrong.
You should be paying very close attention to this situation because, if
the Bush Administration and Wall Street have their way, you are going
to be on the hook for at least $700 billion to add to the nearly $11
trillion worth of national debt being left to our generation.
As a quick overview, earlier this decade, then-Sen. Phil Gramm led the
Republican-controlled Congress to massively deregulate the financial
markets and, more specifically, tear down the boundaries between
investment and commercial banks that had been in place since the Great
Depression. Commercial banks began to issue home loans to people who
could not possibly pay them back on terms they could not possibly
understand.
That increased demand for housing which increased prices. This led
investment banks to buy up these "sub-prime" mortgages from commercial
banks eager to shed the bad debt, further speculating prices upward.
Often, when a sector of the stock market has highly inflated value
("inflated" in that the value was derived from bad debt), it is called
a "bubble."
In 2007, the bubble burst and all those people who could have never
handled their mortgages in the first place, in combination with other
declining economic conditions, started to default on their loans.
Because of Republican-led reshaping of U.S. bankruptcy laws in 2005,
there suddenly was no arbiter between the banks and the consumers.
Families lost their homes and the investment banks suddenly found
themselves in possession of billions of dollars in bad debt. With
nowhere to turn and all their capital tied up in burnable IOUs, Wall
Street titans like the Lehman Brothers, AIG and Bear Stearns crumbled
overnight. In terms of the historical significance of these events, it
is on par with a Tuesday in 1929.
Thankfully and unsettlingly, the Federal Reserve and the Bush
Administration wield nearly dictator-like power in ensuring that the
economy can fall only as far as they will allow it to. When the Dow
dropped over 800 points in 48 hours last week, it was clear that
something needed to be done. As I mentioned above, the federal
government has asked for $700 billion to bailout the entire financial
sector by buying all the bad debt, allowing these banks to continue on
living on a charitable grant from the U.S. taxpayer.
I say, "No."
I agree that something needs to be done, but the plan presented by
Treasury Secretary Henry Paulson and the Bush Administration is an
affront to intelligent people anywhere. Let's be clear. These banks are
acting incredibly irresponsibly. They knew of the tremendous risk in
buying this bad debt and did it anyway. In any other sector of the
economy where the CEOs have less political connections, the idea of an
industry-wide bailout would be ludicrous.
Moreover, further bankrupting our already bankrupt federal government
is not likely to be a better solution than letting these companies
wallow in their bad decisions. The government plans to essentially give
away $700 billion in taxpayer funds, allowing these banks to carry on
as though they did nothing wrong with no requirement to ever pay us
back. By the way, the CEOs of these companies are going to receive
millions of dollars in severance while their employees lose their
pensions and livelihoods.
In the 1980s, during the Savings and Loan crisis, the federal
government came up with a plan which involved taking over the failing
banks and selling off their assets to satisfy the bad debt they
incurred through gambling people's deposits in the stock market. While
the taxpayers still had to foot a pretty healthy portion of the
bailout, the banks were not allowed to continue existing and there were
no golden parachutes. In the United States and around the world,
financial sector bailouts often look like this and are primarily in the
stock market causing bailouts of the financial sector happen quite
frequently.
Additionally, Congress should use this opportunity to restore the
regulations separating commercial and investment banks to prevent
something like this from happening again - if for no other reason than
we don't have the money to bail out any more Wall Street titans with
lots of political connections.
The CEOs that helped craft the corporate culture that created this mess
should not be allowed to safely parachute into Malibu with millions in
taxpayer dollars. Congress must restrict severance packages to no more
than their standard yearly salary.
Congress must also address the thousands of families currently being
tossed out on the street. The rescue package must include the ability
for bankruptcy judges to lower the principle left on the mortgages and
modify the interest rates.
Congress cannot possibly shoulder the load of the employee pensions of
the various companies that have crumbled in the wake of this crisis,
but they should require the banks to first pay into a fund that will
eventually provide for their retirements.
No matter the political connections, these companies had a moral
responsibility to the American people to act prudently, and they did
not do that. Raise your hands if you believe a "free market" economy
means getting a bailout whenever things get too tough.
##30##
((Distributed on bahalf of U-Wire via M2 Communications Ltd -
http://www.m2.com))
((U-Wire - http://www.uwire.com))
Copyright ? 2008 U-Wire
[ Back To IVR Community's Homepage ]
|
INDUSTRIES
Activate Email 
INDUSTRIES
