Friday, September 26, 2008

Privatized profits and socialized losses

From our American correspondent...

The recent financial names that have ceased to exist reads like a Who’s Who of Wall Street. There is no longer a Bear Stearns, a Countrywide Financial, an American Home Mortgage, a New Century Financial Corporation, a Lehman Brothers, nor a Merrill Lynch & Company. The government-sponsored entities Fannie Mae and Freddie Mac have been taken over by the federal government. American International Group, Incorporated, had to borrow eighty five billion dollars from the government to remain solvent. There is talk that the consumer bank Washington Mutual as well as other financial institutions are in trouble. And through the vast majority of all this financial turmoil, the federal government has been willing to put United States tax payer dollars, the latest move is projected to cost something like an additional seven hundred billion dollars in order to keep the economy going, or at least limping, along.

But one thing you don’t hear promoted very much are the complaints from some financial pundits about the negative implications of socialized federal bailouts. So far the Federal Reserve has already put up hundreds of billions of dollars to keep this economy afloat. A lot of people talk about these entities being so large that if they go under it would drag down not just the American economy but the global economy. It seems to me that if we were so concerned about the national or global economy, it would have been smart to put a stop to this economic nightmare that has Freddie Krueger roaming Wall street back when it was small and manageable over on Elm street.

When stories were developing about an increasing number of people not being able to afford their homes, people were told to show some personal responsibility and quit looking for a handout. Obviously handouts are only for companies with lots of zeroes behind the other numbers in their bank accounts. Accusations of predatory lending were dismissed as nothing worth federal-level scrutiny. People should have known better whether or not they could have afforded their homes. It would appear fair to me that if this rather short-sighted financial logic is good for the little goose, then it ought to be just as good for the giant gander. If we propped the little players up and cared about their financial stability, made sure that the average consumer had everything we needed to keep our heads over water, then the big players would have been supported through a strong, publicly funded economic foundation.

Now, by going directly to the Federal Reserve, companies are getting their public funds without the hassle of dealing with the average joe middleman. Who needs to support the little individual family economies when big players can go directly to the public teat? And while these banks get their infusions of billions of tax payer dollars, individuals will get an infusion of about six hundred dollars to help them afford another hundred fifty gallons of gasoline at roughly four bucks a gallon. Am I the only one who sees the hypocrisy of this only-save-the-big-guy thinking?

In the movie Titanic, when it became obvious that the massive ship was fatally damaged on her maiden voyage and tragically sinking in the icy, dark waters of the Northern Atlantic, there was a scene where the poor souls traveling in baggage class were actually padlocked down on the lower decks in order to reserve escape on the limited number of life boats to the wealthy first-class passengers. It must be some basic flaw of human thinking that only rich people deserve saving.

The RMS Titanic serves as an apt analogy for America’s economy. Men and women trusted with steering her safely through dangerous waters were too focused on making the most money possible, as quickly as possible, without the slightest thought as to what might or might not be prudent. When there were signs that slowing down was a sensible course of action the thought of smashing records and becoming wildly successful was just too attractive to the ego to not even try for. Like the captain of the Titanic, the idea of having enough equipment for everyone’s safety never even occurred to these captains of industry. And we will do everything we can to save big corporations while we will let individuals get trampled.

Relatively few people are concerned about the dangers of socialized financial bailouts. When these financial institutions were doing extremely well, they never called the government and begged for someone to save them from too much profit. Collectively speaking, we will think nothing about using our socialized wealth to help big players through hard times. But let it be somebody who could use a little help that would come from just a sliver of a fraction of a single percentage of a tiny portion of what it takes to save one of these giants and it’s too bad... so sad. It is pretty obvious that we penalize people for being financially small if not outright poor, while we move mountains to rescue people who wouldn’t give any a second thought to keeping the vast majority of the public financially small if not outright poor so they can become the fat cat that we all care so much about.

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