Every man, woman, child is $3,000 poorer
Published 1:22 pm Saturday, October 4, 2008
Americans are witnessing a historic bank job such as the world has never seen. Willie Sutton has been totally outclassed by Henry Paulson, Ben Bernanke, Wall Street bankers and Washington politicians. Only this time instead of the banks being held up, the banks are holding up American taxpayers — to the astonishing sum of $1 trillion. What has happened is a pyramid scheme executed by the financial institutions using $62 trillion in unregulated credit derivatives and sub-prime mortgages to inflate the price of homes, creating the illusion of a forever expanding housing bubble — the illusion that a house at any price was a good investment. No, you don’t have to be able to repay the mortgage, just hold on to the house long enough to resell it at a handsome profit. In the process of creating this bubble, they reaped hundreds of billions in commissions, fees, stock options, salaries and other personal compensations that furnished lifestyles only an oriental potentate could imagine.
Now that the housing bubble has collapsed, as bubbles do, and the inventive credit instruments backed by near-worthless mortgages are weighing down balance sheets, they need to unload these toxic “assets” on the only people around to stick with the bill — the taxpayers. From now to Election Day, you can expect politicians try to explain to unhappy taxpayers how the economy was saved from calamity by the courageous actions of Congress. They worked hard over long hours to save your jobs, maintain your pensions and preserve the very essence of the American way of life. And through some unexplained alchemy they may even suggest this toxic waste will turn into gold and become profitable — eventually.
Unfurl the flags, strike up the bands, but among all the sound and fury, what you won’t hear is the downside of what has just happened. Every man, woman and child in America will become roughly $3,000 poorer to bail out an undeserving financial industry. Taxes will need to go up to pay increased interest payments on a federal debt already at record levels. Other problems such as health care, education, repair to crumbling infrastructure, Medicare, Medicaid and Social Security deficits will be issues deferred. The dollar is likely to weaken even further, causing prices of commodities such as energy and gasoline to go up. Foreigners will more likely see Americans as a bad risk and less likely to continue to hold American dollars or to grant us credit, which would lead to a whole new doomsday scenario.
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Worst of all, we have changed the most basic dictum of capitalism: If you make a profit, it is yours, but if you sustain a loss, that also is yours. Now in no uncertain terms, have we said if you make a profit it is yours, but you take a loss, it will be borne by the taxpayer — if you are big enough. The problem with Willie Sutton is that he should have thought on a grander scale.