fREDeral loan buyout

This is a pretty serious post, on par with my Rumba warning from last year.

I am sure by now most of you (if anyone actually reads this) have heard of the recent Bush administration proposed buyout of essentially bad loans to the tune of around $1 Trillion or in actual terms: $1,000,000,000,000.00. That is a lot of zeros. The bad loans the government is buying out relate to mortgages. The major companies involved are Lehman Brothers, Merrill Lynch, and AIG.

I think this is a bad idea. The government believes (in the Bush administration read this as Prays) buying these bad loans will save the backbone of American financial institutions. This outcome is merely a possibility. Another possibility is that this will do us no good at all.

What it will do is have the United States take possession of heretofore private loans. To me this is too large an intervention into the private sector by the government. That is why I titled my post the way I did. This public purchase of private debt reeks of the kind of state ownership unseen since the fall of the U.S.S.R.

One merely need look at history (or Star Wars) to see how small events can domino into a world changing catastrophe. Augustus took power in small increments eventually destroying the Roman Republic once and for all. Hitler did the same thing, gradually, taking small steps and then eventually threatening the entire world (See Star Wars Episodes I-III to see the birth of the Empire). Simply put, this mortgage buy out may look like a one time thing on the surface but it could very much be the first (ok the TVA was probably first) in a series of events that absolutely change the fabric of the United States.

So, much for small government at any rate. At the very least even if this does work it represents an unholy intervention by the government of the United States into the daily lives of Americans. This is called Totalitarianism.

These three companies mentioned above got into this mess by giving out these variable interest mortgage rates. They got in trouble because they were acting as predators and using under-educated and unsophisticated purchasers. My solution unfortunately for the people who were the prey (who may still be left unprotected by the government buyout anyway) is to just let their loans fail. As it stands now there is no accountability for these companies. They act like they acted and face small consequences because the government is going to buy them out. So in the future when all of this is behind us, not withstanding the other consequences, other companies are going to do the same thing. If there is no punishment there will be no incentive to change.

According to MONEY magazine's website, the CEO of Lehman Brothers made $22.1 million in 2007. MSNBC reports Merrill Lynch's CEO as having made over $46 million in 2007. Fortune reports the poor white trash CEO of AIG only made $13 million in 2007 (down from around $26 million in 2006). Do you foresee the point I am getting at? I find it difficult to stomach that these companies that paid their bosses this amount of money are essentially getting bailed out by the government while small businesses run by John Q. American fail everyday. Some are failing because they cannot secure loans because of the predatory practices of companies like these. This almost makes me physically ill just to think about it. If the government does succeed in bailing these companies out, I think these CEOs should be publicly executed on the steps of the Lincoln Memorial.

-J