Other People's Money-Bailout Mania

Other People’s Money: Bailout Mania

In the consulting world, a baseline maximum is:  “If you have a problem that can be solved with money, you don’t have a problem, you have an expense.”   But at what point is the spending of money the problem itself?   

Let’s look at other US Government programs, wars and social programs, in terms of their “inflation adjusted” costs in 2008 dollars.      On the American Thinker www.americanthinker.com    author Ethel C. Fenig lays out the cost of big government programs (wars, social programs, bailouts), based on research from the Jim Bianco, who works at the Arbor Research & Trading, Inc.    For more info  www.arborresearch.com    Who is the Bianco Research Service
?  Bianco Research specializes in investment research for the professional and institutional investor. Using "macro" analysis of the fixed income, equity, and commodity markets as a foundation, Bianco Research provides unique insights into the markets.   So what did Jim Bianco research show on these US government expenditures?

            The current Credit Crisis bailout is now the largest outlay In American history.   Jim Bianco of Bianco Research crunched the inflation-adjusted numbers. The bailout has cost more than all (italics added) of these big budget government expenditures - combined:

• Marshall Plan: Cost: $12.7 billion, Inflation Adjusted Cost: $115.3 billion

• Louisiana Purchase: Cost: $15 million, Inflation Adjusted Cost: $217 billion

• Race to the Moon: Cost: $36.4 billion, Inflation Adjusted Cost: $237 billion

• S&L Crisis: Cost: $153 billion, Inflation Adjusted Cost: $256 billion

• Korean War: Cost: $54 billion, Inflation Adjusted Cost: $454 billion

• The New Deal: Cost: $32 billion (Est), Inflation Adjusted Cost: $500 billion (Est)

• Invasion of Iraq: Cost: $551b, Inflation Adjusted Cost: $597 billion

• Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698 billion

• NASA: Cost: $416.7 billion, Inflation Adjusted Cost: $851.2 billion

TOTAL of historical US Government programs, wars and bailouts: $3.92 trillion

So just how much is the US and it’s G-20 partners spending on the massive bail out of the financial system mess?      The liberal leaning climate change advocacy Institute for Policy Studies has a new report out that estimates the cost is over $4 trillion dollars!  “The approximately $4.1 trillion that the United States and Europe have committed to rescue financial firms is 40 times the money they're spending to fight climate and poverty crises in the developing world,” according to the recent report released by ISP   www.ips-dc.org/articles/913

Why would a group like the ISP be concerned about spending Other People’s Money?    Their concern is not from a conservative perspective of fiscal responsibility, but because the US and it’s G-20 partners are spending it on bailing out financial markets, not on climate change or global poverty.  

            Others estimate the spending binge and commitments by the US Government are even higher than $4 Trillion.   Deroy Murdock, writing in Human Events www.humanevents.com estimates that the US Government spending, loan guarantees, commercial loans and other financial bail out actions may total $8 Trillion before the spending spree is finished.

            “As president, neither Al Gore nor John Kerry could have gotten away with such aggressively socialist policies as the allegedly “conservative Republican” Bush administration’s dizzying parade of massive outlays, fiscal injections, equity purchases, mandatory subsidies, and even nationalizations.

These and other new commitments -- totaling a mind-blowing $8.347 trillion and counting -- assume that Washington should pump money into the economy. But it cannot do so without sucking money from the economy. Uncle Sam cannot spend a dollar without first extracting it from taxpayers or lenders, or by printing it in order to spend today the purchasing power that inflation will demolish tomorrow.”  Deroy Murdock, 11.28.08

            The United States estimated Gross Domestic Product (all economic activity for the nation combined) is $14.8 trillion for 2008.   See the web site the Financial Forecast  www.forecasts.org/gdp.htm  for details on the GDP forecast.   To put the financial bail out and massive spending being originated in Congress and the US Treasury in context, it is more that 50% of the total US gross domestic product.    The total US tax revenues (collected for 2006) totaled $2.5 trillion dollars, of which 44% ($1.3 trillion) was collected from individual’s income taxpayers.

            So the massive bailout of 2008, orchestrated by the Democrat controlled US Congress and an outgoing “lame duck” president will be paid for by the US taxpayer in form of higher taxes (as Barack Obama has promised), increased US debt and inflation from money being printed to cover deficit spending.  Whatever the method, the spending in the Washington DC is out of control.    And the incoming Democrat Congress and new Democrat President has said we’ll put a hold on reducing US Government debt and spending until the US economy is back on track.   Huh?   

            Once again the temptation for politicians at all levels, especially those in Washington DC, to spend Other Peoples Money is too easy and too great to resist.   It’s probably a good time to buy some gold, save some money and avoid more personal debt.    We could be in for some wild financial times, given the spending spree in Washington.

© 2008, Four Corners Media, Jasper Welch    www.jasperwelch.org

Bailout Root Cause: Social Engineering 10.5.08

Now that the US Senate has loaded up the 2008 financial rescue package with additional tax ‘extenders’ and increased the size of the Bill to 441 pages at a price tag of One Trillion dollars, it was the Democrat Majority in the US House who passed the “bail out bill”.    Over the past two weeks the US markets have been volatile, the credit markets hobbled and various experts scrambling to figure out exactly how we got here.    But the historical record is clear, the US Congress, particularly the Democratic members, have had their fingerprints on legislation to advocate a greater government role in housing and related targeted loan guidelines.    In fact, in 1994 Barack Obama (note his long time affiliation with ACORN) sued Citibank under the Community Reinvestment Act (CRA) to legally pressure a leading US Bank to make risky mortgage loans.  (More below)

            Back in 2003, when some Republican members of Congress (who were in the Majority at that time), expressed concern about Freddie Mac and Fannie Mae, the Democrats rose to defend the government role in risky loans.  In the words of the esteemed Member of Congress, and chairman of the US House Financial Services committee Rep. Barney Frank (D., Mass.):   I worry, frankly, that there's a tension here. The more people, in my judgment, exaggerate a threat of safety and soundness, the more people conjure up the possibility of serious financial losses to the Treasury, which I do not see. I think we see entities (Freddie & Fannie) that are fundamentally sound financially and withstand some of the disaster scenarios . . . .

            Oops!   It looks like Representative Frank was exactly wrong.  For more on what the members of Congress said 5 years ago  http://online.wsj.com/article/SB122290574391296381.html

Where did the Congressional fingerprints start?  In the beginning was the word, or in this case legislation passed by the US Congress.   

            During the administration of Jimmy Carter and a Democratically controlled Congress, the Community Reinvestment Act  (CRA) was signed into law in 1977.   This started the ball rolling whereby the government began to require banks to make loans for social engineering purposes.    For more info on the CRA legislation, impact on the housing and mortgage lending in the US, see Wikipedia: http://en.wikipedia.org/wiki/Community_Reinvestment_Act

            So how did community organizers, like Barack Obama, use the CRA as a way to leverage their agenda?  Rush Limbaugh, conservative talk show host, put it this way in his early October 2008 show: "That has provided an opening to radical groups like ACORN ... to abuse the law by forcing banks to make hundreds of millions of dollars in 'sub prime' loans to often uncreditworthy poor and minority customers.  Any bank that wants to expand or merge with another has to show it has complied with [these community redevelopment things] -- and approval can be held up by complaints filed by groups like ACORN.  In fact, intimidation tactics, public charges of racism and threats to use CRA to block business expansion have enabled ACORN to extract hundreds of millions of dollars in loans and contributions from America's financial institutions."  Think of ACORN as a thousand Jesse Jacksons, in terms of shaking down companies and institutions.  

            In the mid 1990’s, Democratic President Bill Clinton weighed in by expanding the Government Sponsored Enterprises (GSE) roles in the housing marketing.  From the initial elimination red lining in targeted neighborhoods (a practice by banks that was less risky for underwriting but not socially acceptable in liberal circles) set forth in the CRA in 1970’s, the movement in Congress was to ramp up mortgage lending to targeted neighborhoods and populations (lower income, minorities and substandard housing). Social policies of home ownership were pushed onto the banking system using Freddie and Fannie (GSE’s), through lessening of credit standards and pressuring banks through community organizations like Accorn.

Ed Lasky, a blogger with American Thinker www.americanthinker.com  on October 4, 2008 noted:  Nine years ago (1999), Steven Holmes of the New York Times wrote admiringly of the way Bill Clinton and the Democrats could claim credit for "Eas[ing] Credit To Aid Mortgage Lending." It amounts to a map of how Bill Clinton and Democrats created this crisis.

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.  NYT, 1999.

            According to conservative research (see TownHall at www.townhall.com)

and Media Circus www.mediacircus.com) Barack Obama, as a left wing activist attorney sued Citibank under the Community Reinvestment Act (CRA) in 1994.   This lawsuit, which was settled by Citibank, is part of the legal underpinning to force banks to make poor mortgage loans in order to meet CRA requirements   Here is the direct link on the details: www.MediaCircus.com/2008/10/obama-sued-citibank-under-cra-to-force-it-to-make-bad-loans    

            Social justice (ACORN) plus fiscal liberals in Congress equals risky mortgage polices resulting in a US government bailout.  Another experiment in government responsibility superceding personal responsibility, resulting in the Federal government stepping back in with taxpayer dollars (2008 Rescue package passed by Democrat majority House on October 3, 2008) to fix the mess.    And to realize that Barack Obama was one of those who pushed for this social engineering at the taxpayer expense.  No wonder he had a “hands off” approach during the crisis, and preferred to stay on the campaign trail as long as possible, while blaming Wall Street “fat cats” for the mortgage loan crisis.

 

© 2008, Jasper Welch, Four Corners Media, www.jasperwelch.org