Henry Kissinger famously summed up politics when he said, “90 percent of politicians give the other 10 percent a bad name.”
This year’s politicians have confirmed the truth of this statement with their bald-faced vote-buying schemes to address the weakening housing market. They’ve turned a simple problem into a complex money-wasting boondoggle.
The problem, in a nutshell, is that a bunch of ordinary citizens with shaky financial histories, commonly referred to as sub prime borrowers, bought outlandish mansions they couldn’t afford after being enticed by artificially low interest rates. Banks were eager to harvest more fees and interest and turned a blind eye to borrowers’ credit reports.
As soon as the economy hit a rough patch, the strapped homeowners quit making the payments. In response, banks foreclosed on their houses, then sold those houses at losses in fire-sale auctions, and everyone lost.
The homeowners lost their homes and the banks lost their investment profits. This outcome is natural in a capitalistic free market society; if people make stupid financial decisions, they suffer substantial losses.
However, the politicians saw this unraveling and felt the need to act. As one of my friends said, “if the government isn’t making things worse, how can we know they care?”
Officials rushed in to rewrite the terms of loans, thus invalidating private contract law. This extreme measure did nothing to fix the underlying problem — a guy earning $40,000 a year can’t afford a million dollar house regardless of how the government rewrites the loan payment schedule.
The government was not content just to attempt to help homeowners who were in over their heads, however.
A large financial firm, The Bear Sterns Company, was on the verge of bankruptcy. Its leadership had made numerous poor decisions and the free market had deemed the company unworthy of survival. Good companies survive while capitalism kills the bad ones — it is the natural order.
However, the Bush administration and the Federal Reserve decided to intervene to save the ailing company. They coerced another firm, JP Morgan, to buy out Bear Sterns by offering them loan guarantees to help the deal go through.
This action continues a very bad precedent. If you run a bank, you can feel safe making risky loans because you know the government is there to bail you out should something backfire. As seen in the taxpayer-funded rescue of the Savings and Loans companies and now with Bear Sterns, unscrupulous bankers can count on government assistance funded with your wallet should things go awry.
Making this whole thing even worse is the fact that Bush and the Federal Reserve didn’t even bother to go to Congress to get approval for their scheme. They, without any legislation, authorized $30 billion in non-recourse loans.
Non-recourse is just a fancy word for saying that JP Morgan would have no obligation to repay our treasury – meaning Bush authorized the giveaway of $30 billion in taxpayer money without any Constitutional authority.
This amounts to little more than bribery of a public corporation with taxpayer money by an out-of-control president. If you, like me are tired of the government throwing away money to bail out big business while pandering for votes, I urge you to raise a fuss with your elected representatives.
For instance, you can go to sign the petition at financialpetition.org that calls for the termination of the illegal and unethical Bear Sterns buyout – once signed, your signature is automatically faxed to your congressional representative and senators. It would be a terrible crime if we sit back and do nothing while our elected officials bribe corporations with our own tax dollars.
Ian Bezek is a sophomore economics major. His column appears Mondays in the Collegian. Letters and feedback can be sent to email@example.com.