Voice in the Cheap Seats
By Charles Tarlow
$850,000,000,000. What happened? Who won? ... Who lost? ... Who is getting screwed?
Government is often accused of mismanaging money and not without good reason. Who but the government can lose $8 billion (in Iraq) and just say “oops” with no consequences at all. And who but the government can “borrow” $850 billion to buy “bad paper” to save “the bad guys” and have “the good guys” pay for it.
To realize the magnitude of this government debacle is not easy. The astronomical amount of money for this bailout is almost beyond our comprehension. $850 billion. $850,000,000,000. Wow!
To give us perspective, consider this: If you were to spend a million dollars at the rate of $1000.00 per day, it would take 3 ½ years to spend it all. If you were to try and spend a billion dollars at $1000.00 dollars a day, it would take two thousand seven hundred and seventy-six years (2776 years) to spend that money. You don't even want to know how long it would take to spend 850 billion dollars ... ok ... at the rate of $1000.00 a day, it would take two million three hundred fifty-nine thousand six hundred years (that's 2,359,600 years)!!!
To be fair, our government routinely spends billions of dollars and rightly so. Big projects demand big money. But it is in our best interest to understand that a billion here and billion there will eventually add up to real money. Our children and our grandchildren will be paying for this 850 billion dollar bailout for years to come and it rankles me that it is rewarding the very people and institutions that caused the financial meltdown while forcing us, the people, (who had nothing to do with it) to pay for it. That is just not right.
The problem in a nutshell is bad loans. People who could not afford it were given loans by people who never intended to keep the paper. The professionals lending the money packaged the bad loans as mortgage based securities and sold them to the investment community (you, me, your IRA, your company retirement, as well as foreign investors). This greed based scheme was repeated and repeated until the market was saturated with bad loans. Without sufficient regulatory oversight, bankers, loan brokers, and financial advisors routinely misled people into believing the interest rates (and payments) on their new loans would not rise and the equity in their homes would not stop rising.
So with false expectations and a little greed in their hearts, people chose to believe the financial experts telling them to sign on the dotted line. Many of them did so without even reading the contract. The rest is history. Home prices crashed ... loan payments skyrocketed ... foreclosures ... abandoned homes ... falling mortgage based security values ... failing institutions ... and the stock market meltdown. Did I mention that it is easier to swim the English Channel than it is to get a loan today.
So who lost? People who can't pay their mortgages are losing their homes. Banks that couldn't get rid of the bad paper fast enough are stuck with bad loans and foreclosed properties. But the big losers are the folks who innocently invested in mortgage based securities. Mortgage based securities are among the safest investments you can buy ... or could buy before the banks wrote bad loans and sold them fraudulently as good loans. For no fault of their own, people who invested in mortgage based securities were left holding the bag.
Now ... welcome to the bailout. The government, on our behalf, will be buying up the “bad paper” so the very institutions that wrote the “bad paper” can stay in business. This, they say, is necessary to keep money in the economy. Without money, our economy stops and the great depression will once again rear its angry head. The bailout, they say, is necessary.
So why do we the people feel like a “mark” at the carnival. We had a fun time riding the financial roller coaster and dodge 'em cars, but at the end of the day, all the booth games were rigged and our money was lost. We didn't stand a chance.
What would happen if we let the people who took liberties with lending practices suffer the consequences of their actions. I mean the people lending the money. The banks knew they were making bad loans and should not only be allowed to fail, but should be investigated for fraud. Shouldn't we be waving indictments instead of money at these people. Jail sounds more equitable than financial salvation. Saving them is the last thing we should do.
The real losers in this debacle are the investors. They bought what they thought were safe mortgage based securities. They were hoodwinked by the banks into buying bogus loans. I am not saying that the government should bail them out, but they are the innocents in this whole mess.
Now it's a done deal. We, our children, and our grandchildren will be paying for this for years to come. Congress has spoken. We can only hope that this money will keep our system afloat.
If nothing else comes of this, I hope someone is smart enough to put regulations in place that would prevent this from happening again. My suggestion would be to make it difficult for a bank to sell their loans as investments. At the very least, details of those loans should be available to the buyer. If the banks knew that they would be the ones holding the paper, every single home loan written to date would have been a good one. Some people would not have been able to buy or refinance their homes, but the foreclosure crisis would not have happened, the stock market would not have tanked, and investments in mortgage based securities would be sound.
What happened? Banking fraud and institutional complicity
Who won? The banks and financial institutions
Who lost? Borrowers and investors
Who is getting screwed? The taxpayers
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