We Are Being Haunted by the Ghost of Bailouts Past
Tony BeamDr. Tony Beam's Weblog
- 2010 Apr 26
In the classic Dickens Christmas story "A Christmas Carol" Ebenezer Scrooge; the master of humbug is haunted by three spirits. The ghost of Christmas past allows Ebenezer to remember what he has long forgotten about his past. Many of the memories are painful, bringing to the level of consciousness long buried memories of lost love and missed opportunities for kindness.
The ghost of Christmas present reveals the joy and pain of Christmas as it passes unnoticed by a man who is content to remain locked away in the prison of his own narrow worldview. Mr. Scrooge continues to add to the "ponderous chain" of his past deeds while missing many opportunities to act charitably.
The ghost of Christmas yet to come presents the most frightening image of all. It is the future state of a man who has refused to learn from his past and act sensibly in the present. As Scrooge draws near the dreaded headstone he is forced to finally admit the man of ruin is none other than himself.
Of course, in Dickens classic story Scrooge redeems himself by realizing his greed and lack of human kindness must be replaced with the spirit of Christmas past, present, and future. He ultimately breaks free of the chain that binds him to an endless cycle of self-centeredness.
Perhaps if the three spirits of Christmas are not busy they might be persuaded to pay a visit to the Obama Administration and his progressive allies on Capitol Hill. They could appear as the ghost of bailouts past, the ghost of bailouts present, and the ghost of bailouts future.
As Congress debates the financial reform bill (which should be referred to as the financial repossession bill) the ghost of bailouts past could whisk members back to 1977 for a quick visit with the Carter Administration. Congress passed the Community Reinvestment Act, ostensibly to address the problem of banks and other lending agencies refusal to grant loans to people living in low-income communities. Community activists (later community organizers) accused banks of "redlining" or targeting low-income neighborhoods for loan rejection. CRA was designed to force banks into making high-risk loans that would be backed by Freddie Mac and Fannie Mae. The number of high-risk loans and the number of homeowners rose gradually until 1992.
In 1992, the government began to look for ways set less flexible rules that would allow for mandated targets for home ownership. The newly adopted rules dictated the minimum percentages of special loans that Freddie Mac and Fannie May would be required to purchase. A host of "subprime" borrowers entered the market creating a demand for more loans that banks and mortgage companies supplied. Home ownership skyrocketed until the default rate among borrowers, who found themselves way in over their heads, led to the inevitable housing market collapse that precipitated the current financial crisis. When Freddie Mac and Fannie Mae went bust the housing market went with them. Democrats on the Hill met calls by the Bush Administration for congressional oversight and a reigning in of Freddie and Fannie with outrage and demagoguery.
Maybe the ghost of bailouts past would be able to convince the Obama Administration that it is precisely government involvement in the financial industry that leads to rack and ruin.
If not, perhaps the ghost of bailout present could be imposed upon to reveal the fatal flaws of the current manifestation of government tinkering known as the Financial Reform Act. The bill is a nightmare of government regulation and control of the financial sector. Section 113 of the bill would establish a "Financial Stability Oversight Council" that would be charged with the task of identifying firms that would "pose a threat to the financial security of the United States." If these firms were ever to be considered in financial distress the Federal Government could step in and "control" their risk factors.
Section 203(b) authorizes the Secretary of the Treasury to order the seizure of any firm it decides is in danger of default. In other words, the government could simply step in and seize private property; a move that would be above judicial review. This is nothing less than government-sponsored piracy without the eye-path or skull and crossbones.
Section 210(n)(1) establishes a $50 billion bailout fund that would be obtained by taxing banks and other lending institutions. This is supposed to let the taxpayer off the hook but everyone knows taxes never stop at the target of the tax. They always make their way to the consumer, this time through higher fees for banking and mortgage acquirement. And no one who has been around Washington for very long believes the bucks will stop at $50 billion, which would be considered "chump change" by a government that is $13 trillion in debt.
The ghost of bailout present could point out that Freddie Mac and Fannie Mae are free from any new regulation, and that Goldman Sac's Lloyd Blankfein, Bank of America's Bruce Thompson and SEIU's Andy Stern have been spending way to much time at the White House for us to believe this bill will actually cramp their style. Oh yes, and maybe, just maybe if the regulators at the SEC would spend less time looking at porn and more time looking at Wall Street they would discover there are laws-a-plenty on the books already if they can be justly applied.
All the ghost of bailout future would have to do would be to allow us to see the end result of the massive expansion of government into the private sector. It will be a world where Tiny Tim will be forced to return to his crutch under the heavy burden of taxes that will be required to pay for an all encompassing government that runs our health care, our financial institutions, and controls up to 90% of business through a carbon tax.
I pray we wake up before the ghost of bailouts yet to come shows us "Capitalism" written on the headstone of history.