Aug 31 2007
Real Estate Rescue
Bush is claiming his bailout for subprime borrowers is not a bailout for big financial interests and rich hedge fund investors or reckless borrowers. But in this sinking ship, there’s no question all are tied to the other.
Were subprime borrowers — many of whom got into a mess by either allowing themselves to be suckered into fine print clauses and teaser rates (as if fine print is something new!) or they simply overextended themselves with reckless, hopeful thinking — allowed to default on their properties, undoubtedly the pain would be felt far upstream among Wall Streets finest and lessons would be learned all over.
And, that this is socialism for the biggest banks, bankers and hedge fund managers should not be lost. I suppose everyone but those in finance are allowed to fail in our system. We’ve pointed out for some time that this is nothing new. Wall Street bankers have a long history of doing things that shave away and make thin the hull of our economic ship for their own profits, while the hull deteriorates to precarious levels — so much so that when somethings inevitably pokes through (usually something the bankers themselves have also done), holes appear all over. Now there’s bailing to be done, leaving big problems for everyone on board to sort out.
Now, call us cynics, but in every case where “bailout” is the answer, those poor passengers’ health down in steerage are always anchored firmly to the problem. This is so common that we believe it is far from coincidentally acting as a life preserver for the 1st class passengers whose actions not only caused the problem, but also locked in the profits that assure for them only the finest linens and caviar are part of the ride (not to mention, record bonuses over the last few years). Recall, it was former Captain Alan Greenspan whose easy credit policies gave bankers the tools to create such problems, and both should be held accountable. But the gig appears to be protected — Were the ship to be allowed to go down, all classes of passengers would be affected. So, much like the proposition in the famous National Lampoon cover warning, “If you don’t buy this magazine, we’ll shoot this dog,” we have a situation where we rush to save the dog without permanently disarming the man with the gun in his hand. And, while it is serious business, no doubt like the magazine cover Bush’s denial of bailout is a joke.
We could list all the bailouts where big bank interests were protected by appeals to save the common man. For those of you interested in a detailed summary, consider G. Edward Griffin’s, The Creature from Jekyll Island: A Second Look at the Federal Reserve. Indeed, the subtext of the Federal Reserve has been a long road of bailouts.
