September 28, 2008
The Folly Of Doing Good
Congressional leaders of both Houses of government – in a rush to save Fannie Mae, Freddie Mac and the American banking system from collapse – joined with President Bush to throw $700 billion tax dollars at the problem.
Revelation occurred in the dark hours of Sunday morning in the form of a telephone call between House Speaker Nancy Pelosi and the President.
Treasury Secretary Henry M. Paulson had warned of a massive, economic depression if the U.S. banking system was not relieved of “sub-prime” home loans loaded upon them over the years.
Congress had wrestled with the problem for a week – looking for a fall guy. In the end, Congress had to admit it was the problem.
As the cartoon character Pogo famously observed years ago: “We have met the enemy, and he is us!”
HIGHLIGHTS
Paulson said of the Bush-Pelosi agreement: “We’ve been working on this a long time. We’ve still got more to do to finalize it on paper, but I think we’re there.”
The President and the House Speaker agreed that the bailout money will be given in segments. Paulson will be advanced $250 billion immediately, $100 billion upon White House “certification of necessity,” and the final $350 billion after Congress has been given l5 days to object.
Firms receiving a bailout would be required to give “warrants” (non-voting shares of stock) to the government. Hopefully, this would return some profit to taxpayers.
Compensation for senior executives would be limited – and not available for “golden parachutes” firings.
Democrats agreed not to give a portion of profits from the bailout program to an “affordable housing” fund to social service organizations supporting the Democratic Party.
HOW DID THIS HAPPEN?
Seeds for today’s home-mortgage fiasco were sown in 1977 by President James Carter with his Community Reinvestment Act (Click here). However, subsequent presidents and congresses have dutifully followed suit.
Carter's aim was to do good by enabling the government’s Federal National Mortgage Association (Fannie Mae) and the Federal Home Mortgage Corporation (Freddie Mac) to guarantee “sub-prime” mortgages to poor or ethnic people.
Commercial banks were pressured to follow suit. Hardest hit borrowers appear to be Hispanics – many illegal -- in California, New Mexico and Arizona.
BIG BUCKS BAILOUT
U.S. Treasury Secretary Paulson a week ago asked Congress to bail out Fannie Mae and Freddie Mack – bellwethers for the banking industry.
Federal Reserve Chairman Ben Bernanke emphasized the urgent need for an immediate bail out of government-charted Mae and Mac that blessed poor loans.
Senators approve the ransom, but they are sideline-players when it comes to spending government money. The U.S. Constitution delegates that duty solely to the House of Representatives.
A hundred Republicans in the House were reluctant to throw good money after bad. However, they relented and agreed to bail out the banking industry – because failure to save the banks from their bad loans likely would turn recession into depression.
It is critical that the banking mess be straightened out by late Sunday night when money markets open in Asia.
The American stock market and banks will open at 9:30 a.m. -- and the big-money brokerage firms will take over.
Buckle your seat belts.
By Lindsey Wilger Williams, retired newspaper publisher and syndicated columnist
