Sep 082008
 
Authors: Ian Bezek

Just last week, I was thinking about how we had survived the Bush administration. Sure, it has been a fiasco from start to finish, featuring some of the greatest blunders in recent American history. But it appeared that Bush was now rendered powerless, a lame duck just serving out the rest of his term.

This illusion was shattered Friday when the government announced a bailout of lenders Fannie Mae and Freddie Mac.

These companies were so poorly and fraudulently run that they were losing billions of dollars per month and faced imminent bankruptcy.

Now, instead of letting these companies die a merciful and well-deserved death, the government is insisting on bailing them out.

According to the Treasury, the bail out will cost us roughly $25 billion initially, however, the companies have over $5 trillion of debt that our government will now guarantee to pay.

This means that we, the taxpayers of America, are on the hook to the tune of that $5 trillion.

In theory, the companies’ assets will recover this $5 trillion, however a lot of their so-called assets are really no-document “liar loans” loans to people with bad credit and loans to unemployed people.

The companies went broke for a reason; their assets were not nearly equal to their debts, meaning that we, the American taxpayers, are buying out companies with negative total value.

The government will have to foreclose on many of these loans to get any of the collateral from these loans back. Long story short, the government is going to end up losing hundreds of billions, if not trillions, of dollars taking over these companies. That is money we can’t afford to lose.

As I pointed out previously, we are already $9 trillion in debt, and we are running a massive deficit every year.

These bailouts will add another $5 trillion immediately to that debt, plus the bailout will lead to massive deficits as Freddie and Fannie continue to hemorrhage billions of dollars a year under government control.

The final result of all this debt? There is speculation that the government will have its credit rating downgraded.

Similar to our own personal credit scores, the government’s credit rating is a measure of how safe it is for investors to loan to it.

Should America get downgraded, it would mean that private companies with the top ratings such as Exxon, General Electric and UPS would be viewed as safer to loan to than our own government. It is troubling to think that loaning money to Exxon would now be a more prudent move than entrusting the government with your savings.

As people lose confidence in the government’s ability to pay its bills, services will have to be cut and taxes raised to keep the lights on in Washington.

“If you are worried about the sustainability of Medicare and Social Security, this [bailout] will not help you sleep at night. Our government is rapidly moving down an unsustainable path,” said Chris Ciovacco, a market commentator. “This bailout significantly damages our country’s long-term financial outlook.”

The saddest part is that both parties approve of the bankrupting of America. Democrats, as socialists, find it difficult to ever resist a bailout.

The Republicans, however, promised to block any future bailouts in their party platform just last week at the Republican National Convention. Days later, they proved their own rhetoric to be a bold-faced lie.

Bush and the Republican Party have cemented their place in history as complete failures. America’s leaders have mortgaged our future to bail out stock market speculators and incompetent bank managers.

This bailout helps a few privileged elites. In return, however, you, me and all of our kids will face an insurmountable debt load that threatens to bankrupt our nation.

Ian Bezek is a junior economics major. His column appears Tuesdays in the Collegian. Letters and feedback can be sent to letters@collegian.com.

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