Read this, print this, distribute... from Mike Walker
All,
No more Taxpayer Bailouts? Not true based on the half-finished job we are looking at.
Follow the taxpayer's money through the bailout labyrinth and you will become worried. We are facing tens, potentially hundreds, of billions of dollars more in bailouts. These are not hypothetical bailouts linked to some unknown future financial crisis but bailouts stemming from the 2007 crisis that will be “begged for” in the coming weeks and months. Why?
Look at the new list of the top 10 “borrowers” of taxpayer money in the mortgage/financial industry based on an earlier e-mail sent back in January.
Entity Borrowed Paid Back +Profit for US Taxpayers New Tax
Fannie Mae $75.2 Billion $0 $2.5 Billion Exempt
AIG $69.9 Billion $0 $0 Exempt
Freddie Mac $50.7 Billion $0 $4.3 Billion Exempt
Ctitgroup $45 Billion $20 Billion $2.5 Billion 15% Rate
B of A $45 Billion $45 Billion $4.6 Billion 15% Rate
Wells Fargo $25 Billion $25 Billion $1.4 Billion 15% Rate
JPMorganC $25 Billion $25 Billion $1.7 Billion 15% Rate
Goldman-S $10 Billion $10 Billion $1.4 Billion 15% Rate
Morgan-S $10 Billion $10 Billion $1.3 Billion 15% Rate
PNC Fin $7.6 Billion $7.6 Billion $0.7 Billion 15% Rate
First, Fannie Mae is now number one in sucking up taxpayer dollars. They jumped past AIG, the “system failing” institution. This occurred while the original debt owed to the taxpayers stayed the same for all but “still sinking” Fannie Mae.
Second, the top “borrowers” from the private-sector financial institutions have paid back 85% of the money owed plus an average 8% “return” for the taxpayer. Good news, but no relaxing on our part until either all our money is paid back or the debtor institution closes its doors.
Third, the two Government-Sponsored Enterprises (GSE’s) have still not paid back one cent on the billions owed. They have also only generated a 5.4% average “return” on the debt to date. And Fannie Mae may keep visiting the bailout trough. Its $75,200,000,000.00 debt may grow. The Fannie Mae bailouts are NOT going to end due to the new financial reform bill being passed in Washington DC, not now, not ever. They are exempt from its provisions.
That, in a nut shell, is why the private sector works and big government does not. Put another way, one lesson learned from the Great Recession (as evident in the table above) is that free enterprise works and works within an albeit flawed “accountability/ consequences” system while government enterprise does not work because politics inevitably intrudes and gradually destroys the marketplace system of checks and balances.
We painfully learned that a loss of checks and balances within a government enterprise can cause major damage to the private sector as well. We relearned that the private-sector marketplace is the indispensable engine in creating future wealth for the benefit of our society as a whole as well as our government.
Why the big bailouts in the first place? Back in 2007 we almost had the entire mortgage/financial sector go under and take us all with it. Action had to be taken to prevent that and it cost a lot of money. We taxpayers wound up on the hook for hundreds of billions of dollars in the form of a massive bailout.
The bailout kept us afloat and for that the folks in Washington DC deserve a lot of credit. But in the end, the bailout is only a (very expensive) bandage so what is being done to address the root problems of the 2007 collapse?
The politicians in Washington DC are now telling us that they are fixing the root problems through regulation of the mortgage/financial markets. They are telling us that the hole is being plugged while the bailout keeps us afloat.
But that is wrong because there are two holes in the mortgage/financial ship that need to be plugged to keep it (and us) from sinking in the future. There would not have been a “Great Recession” if both the “Banks” and the GSE’s had acted rationally. We have to fix both root problems.
Do not get me wrong, plugging one hole is great news. The folks in Washington DC deserve an “A+” for mandating the creation of an exchange for credit default swaps and other derivatives. The old system blessed by the International Swaps and Derivatives Association failed us all. Had the transparency of an exchange been in place in 2006 much of the subsequent mayhem may have been avoided.
Most Americans support the reform of the mortgage/financial sector. Many support the new 15% tax on banks, etc being imposed as well. And by all means go after Goldman Sachs. If the SEC has a reasonable belief that they broke the law then prosecute them and let justice take its course. By the way, at least someone in Washington DC was smart enough to first get back all the taxpayer’s money plus a nice return (14%) from Goldman Sachs before bringing forth the lawsuit.
We can now say we have plugged or are very close to plugging one of the holes, however imperfectly. But the ship will still sink if the other hole is not plugged and, as far as the taxpayers are concerned, it is the much larger of the two. The taxpayers want the giant eaters of taxpayer dollars, Fannie Mae and Freddie Mac, to get the same treatment as the banks.
When are we going to see the “Fannie Mae/Freddie Mac” hole plugged?
Back in 2006 the effort to regulate Fannie Mae and Freddie Mac died during a filibuster when the needed sixty votes could not be found. Just as in the case of the missing swaps and derivatives exchange, if Fannie and Freddie had been reined in at that time then much of the pain we are now suffering might have been avoided.
I personally favor the "Bear Stearns’ Solution” for Fannie and Freddie. They rolled the dice (in part in the pursuit of big profits/big dividends/big bonuses) and failed in a big way. I say do away with them just like all the old traditional investment banks were done away with in 2008. The "To Big to Fail" argument is a bunch of bunk in this case. This isn't 1910; bankruptcy no longer means automatically closing the doors and selling off every last paper clip. The home mortgage industry will not disappear if Fannie and Freddie rightfully enter the dustbin of history.
If Washington isn’t going to shut Fannie and Freddie down then we want a major regulation bill to fix them but most of all we want our taxes back. We want our money back from Freddie and Fannie!
If the nabobs in Washington think they can get away with doing nothing about Fannie and Freddie because they think we are too simpleminded to follow what they are doing with our tax money then that is another reason why trust in the government is at an all time low.
We know there are two holes in the financial/mortgage ship and we know the bailouts will go on and on and on if nothing is done to plug the “Fannie and Freddie” hole.
Too many in Washington just don't seem to trust us with the whole truth but spewing a half-truth in its stead is clearly not working. That just makes us more suspicious. Is this malaise so prevalent because we have too many good reasons to not trust government? Certainly the 125.9 billion “good reasons” in the case of Fannie Mae and Freddie Mac are more than anyone ever needed or wanted.
Even more worrisome is the fear that $125.9 billion is not the end of it. Will someone in Washington DC step up to the plate and tell the American people what the true cost of the taxpayer bailout really is for Fannie and Freddie?
