An Expensive 10 Days: Bailouts Could Add Over One Trillion Dollars to U.S. Deficit
September 22nd, 2008
First it came with the surprise nationalization of the Fannie Mae and Freddie Mac, the two giant mortgage insurers. The assumption announced to the population was it would cost up to $200 billion, but since they own a combined total of $5 trillion in USA mortgages, and failure rates are continuing to rise, not just on subpar loans but across the board, but let’s just hold our breadth and assume $200 billion for now.
That fiasco, which still has a lot of detail not in the light of day, was nearly the equivalent of half the deficit for this entire year, but was just the start.
Next was the AIG fiasco, and per The Wall Street Journal, their senior leadership truly had no concept of how many tens of billions they needed. First it was $20 billion, next $40 billion, whoops $60 billion and so on. The final tab was $85 billion, though again no one can really give us a specific accounting of why the biggest insurance company in the country, and indeed a flagship of American industry across the globe is suddenly facing this shortfall. The culprit vaguely cited is the mortgage situation hurting their credit rating, but surely it must go much deeper than that. I will do blog updates as actual facts become available. On the face of it, I think I can say as someone in the business world for twenty years, we are dealing with what could only be called criminal incompetence.
Then we are greeted by the mother of all bailouts – Paulson not just proposes, but appears to be getting support to rapidly ram through a $700 billion fund to buy bad loans and securities. No one seems to know the details, besides Paulson and his minions and they are not talking. Yet momentum seems to be ridding towards allowing this massive, budget busting monstrosity. For example, will every bank be able to dump bad loans onto this fund until it runs out, or is there some standard or limitation? Maybe it is necessary, but they are not yet putting the facts on the table for the citizens of this country to review and understand, so how can we know? One thing is certain – pushing something completely new of this magnitude without details through and without our ability to review it is a recipe for a huge fiasco.
In total, these three add up to a trillion in cost to our citizen taxpayers, and does not even include the Bear Stearns fiasco. Speaking of our citizenry, how does a trillion dollars stake up? A trillion dollars divided by the population end up being roughly $1 million per 300 citizens including everyone, even children, or about $3500 each for every single individual (yes, I realize that includes folks that do not pay taxes, so the real amount per taxpayer would be much higher).
Because the government does not actually show a liability until it borrows that dollar or gets an invoice, this does not “officially” quadruple this year’s national budget deficit, but it might as well if it goes through, because that is the reality of the real cost.
Yes, we need the financial system stabilized, but we also do not have a blank check. These issues alone will help impair our future ability to borrow as a nation at low rates, meaning we will eventually have to pay much more interest to borrow from foreigners, and goodness knows what fiasco is coming next. We are putting our nation at risk.
Watch for updates in the future as I try to drill into the truth on these issues, and please let me know what you learn or think, and join me in contacting your congressman.
Sincerely,
Todd Lipscomb
Founder of Made in USA Forever (http://madeinusaforever.com/)
Monday, September 22nd, 2008 at 8:15 amand is filed under Uncategorized.
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