As a taxpayer, why did you bail out all those poorly administrated banking institutions?

Question

As a taxpayer, why did you bail out all those poorly administrated banking institutions?

Answer 1

Because American taxpayers had absolutely no say in the matter as usual.

Congress believes corporations are important so they should be bailed out whenever their existence is threatened where as ordinary and poor Americans are replaceable and not of vital importance to the economy so if they have bad luck they should clean up the mess themselves or simply suffer. To the "free" market fundamentalists either one is fine as long as they are not required to show any form of solidarity.

"Fannie Mae and Freddie Mac have been at the center of the housing market speculation that generated billions for Wall Street investors and CEOs and has now come crashing down, precipitating the greatest financial crisis since the 1930s. The two companies are massively leveraged, holding a combined $81 billion in capital to back the mortgages they own or guarantee—a ratio of capital to debt of 1.6 percent.

Their Ponzi scheme structures have been undermined by the collapse in home prices and the virulent spread of foreclosures. Over the past nine months they have lost a combined $11 billion and their stock has fallen by as much as 80 percent—a decline that turned into a rout last week as their stock values were cut nearly in half.

Their debacle is the latest and to date most spectacular expression of the decay of American capitalism. It is another refutation of the myths promoted by the US ruling elite about the miraculous workings of the capitalist market—supposedly the pinnacle of human achievement.

At the same time, it exposes the cynicism behind the official mantra of “free enterprise.” When it comes to big capital, losses are socialized. Only profits remain private.

Paulson’s plan to use taxpayer funds to rescue Wall Street were worked out over the weekend in feverish closed door consultations between the Bush administration, the Fed, the big banks and investment houses and congressional leaders. They were under enormous pressure to come up with a plan before the Asian markets opened Monday, and the crisis atmosphere was compounded by the fact that Freddie Mac was scheduled to market $3 billion in short-term debt. A catastrophe was looming if the banks and investment houses refused to buy the company’s bonds.

There can be no doubt that Wall Street exploited the situation to extract from the government the broadest possible guarantees and assurances for its interests. But the entire scheme had to be sanctioned by the Democratic Congress, since it required changes in the charters and legal regulations governing the two companies.

The immediate and vocal support announced by key Democratic legislators for this massive taxpayer-funded bailout demonstrates the most important fact of American political life: the utter subservience of both parties and all of the official institutions to the financial aristocracy.

Rep. Barney Frank, the chairman of the House Financial Services Committee, proclaimed his agreement and pledged to have emergency legislation ready for Bush’s signature by the beginning of next week at the latest.

Senator Christopher Dodd, the chairman of the Senate Banking Committee, similarly signed off on the blank check for the mortgage giants. Senator Charles Schumer, a senior member of the Banking Committee, said, “The Treasury’s plan is surgical and carefully thought out and will maximize confidence in Fannie and Freddie while minimizing potential costs to US taxpayers.” He added that the plan would “be reassuring to investors, bondholders and mortgage-holders that the federal government will be behind these agencies should it be needed.”

The corporate-controlled media did its part to boost the scheme by portraying it for the most part as a boon to homeowners.

Suddenly, the much bemoaned “gridlock” in Congress vanishes. The Democrats, who have sought to explain away their repeated votes to fund the Iraq war by pointing to the supposedly insurmountable opposition of the Republicans to their “redeployment” plans, claiming “the votes aren’t there” for their partial withdrawal schemes, now march in lockstep with the minority party to rush through laws demanded by Wall Street. Other initiatives, such as those on immigration, have died as a result of unbridgeable differences between punitive and even more punitive bills. But on this issue, Congress moves with military dispatch.

There is nothing mysterious about the abject subordination of both Congress and the executive branch to Wall Street. Paulson, whose worth is estimated in the hundreds of millions, was chairman and CEO of Goldman Sachs before taking over the post of treasury secretary.

The Center for Responsive Politics reported in 2006 that about half of the Senate’s 100 members were millionaires, with an average net worth of $8.9 million. In 2004, 123 members of the 435-member House of Representatives earned at least $1 million.

The buying of legislators and their votes by corporate interests is carried out openly and shamelessly. Members of Frank’s House Financial Services Committee received over $18 million from financial services, insurance and real estate firms this year. Frank himself raised over $1.2 million, almost half of which came from finance and related industries.

Senator Dodd’s top contributor in the 2003-2008 election cycle was Citigroup, followed by SAC Capital Partners. He raised $4.25 million from securities and investment firms.

Senator Schumer’s top contributor was likewise Citigroup. He raised $1.4 million from securities and investment firms, his most lucrative corporate sector.

The government-corporate nexus is awash in corruption and bribery. This has grown apace with the so-called “financialization” of the US economy over the past three decades. The ruling elite has systematically scrapped large sections of industry and increasingly amassed its wealth through forms of financial speculation divorced from and destructive of the productive forces. The result has been an immense growth of financial parasitism alongside a brutal assault on the social position and living standards of the working class.

Social inequality has grown to unprecedented levels, along with a new financial aristocracy that dominates all aspects of public life.

The counterpart of financialization is the criminalization of the American corporate-financial elite. Fannie Mae and Freddie Mac—which have their roots in social reforms enacted during the New Deal—epitomize these twin processes. Virtually unregulated, they have engaged in massive speculation, bolstered by accounting fraud and bribery, to provide multi-million-dollar salaries for their top executives.

The former CEO of Freddie Mac, Leland C. Brendsel, paid $16.4 million in fines last year to settle charges of mismanagement at the mortgage company. The year before, the company paid a penalty of $3.8 million for illegal payments and perks to members of the House Financial Services Committee.

Fannie Mae, for its part, was fined $400 million for accounting manipulation from 1998 to 2004, during which time top executives reportedly received more than $90 million in bonuses.

Nor will the proposed bailout of these companies halt the deepening crisis of American and world capitalism. It will inevitably further undermine global confidence in the US financial system, intensify the crisis of the US dollar and stoke inflationary pressures. What is emerging is a crisis in which the solvency of the US government itself is called into question. As the Wall Street Journal put it on Monday, “But with financial woes mounting, some investors are betting they may profit from weighing an unthinkable question: Could the US government default?”

The bailout with public funds of Fannie Mae and Freddie Mac will set a precedent for a far broader use of taxpayer money to rescue major financial companies. Last week Paulson and Bernanke went before the House Financial Services Committee to demand legislation institutionalizing federal intervention to bail out failing Wall Street firms. The response of key Democrats such as Frank was to urge the regulators to call for such measures now, rather than after the new Congress takes office next year.

The cost of such bailouts will be borne by the working class, in the form of deeper cuts in social programs, education, housing and basic infrastructure, and new waves of corporate downsizing and wage-cutting.

The working class cannot defend its vital interests through pressure on the Democrats or any other institution of the American plutocracy. In the coming class battles, it must organize itself as an independent political force to fight for t

Answer 2

Im opposed to all government bailouts as a matter of principle.

But this “banking crisis” was created by the same government that now behaves as if it is completely shocked. This problem grew out of the sub-prime mortgage failure which has affected several banks and financial institutions across the country. It is the logical result of government policy that attempts to redress  a non-existent injustice as a means of ensuring political success and electoral dependency.

Several years back, as the culmination of years of false allegations, the Democrats with the help of several Republicans decided to do something about “discriminatory lending” in the banking industry. Financial institutions had rather strict policies which governed who received home loans. This was a simple matter of good business judgment as there was no logic in lending money to people who have a demonstrated history of financial irresponsibility. Unfortunately the majority of those who were turned down for loads were black and Hispanics. Therefore, according to the standard Socialist template, financial institutions were discriminating against minorities. Nevermind the fact that Whites were denied for the same loans at a higher rate than Asians. But we shouldn’t let facts get in the way of a good story. Democrats have to maintain their reputation as the people’s savior.

Therefore the government began instituting policies to correct the problem which all but forced these institutions to take risks where logic dictated otherwise for the security of the bank and the individual. But naturally socialists sometimes understand economics hence they provided a few safeguards for the banks should the inevitable foreclosures actually occur. After all it was felt that the banks were overstating the dangers and any real detriment would be quite minimal. Once the new lending standard became common practice everyone got into the game. What could possibly go wrong when lending huge sums of money to people with little credit, no credit, bad credit or too much credit?

But how can a bank take such risks with other peoples money? Simple, just offer the lenders the loans at considerably higher interest rates. Therein lies the problem As the bills began rolling in the borrowers realized that they really could not make ends meet and the foreclosures began. As the banks REO’s pilled up its credit worthiness plummeted and its stock price did likewise. Moreover with so many properties now on the market in such a short time period we get your basic issue of supply and demand where buyers could now bid down the price of homes. This dragged down the overall home price in every market thereby hurting those who had been locked in to mortgages on the original values. Big problem here.

So as a Democrat how do you get around yet another problem created by your policies? You rely on the general ignorance of the public and complicity of the media. No one is going to go back and lay this history out for you so Dems can just blame the Banks and George Bush’s economy for the problem. It s the perfect recipe for political survival.