While we eagerly wait for the inauguration of our new president, the foul odor of the Bush administration continues to waft over our downtrodden economy. Only a month after the passage of the much-hyped bailout, it’s already proven to be completely flawed.
Less then two months ago, Secretary of the Treasury Henry Paulson ran breathlessly to Congress demanding $700 billion to supposedly save the financial system. We were told the money was needed immediately or unspeakable doom would befall us.
Of course, as I wrote back then, Paulson was flat out lying; Congress initially voted down the bill and yet there was no crash of the financial system.
Paulson claimed that our ATMs would quit working if the bailout didn’t immediately pass — it was blackmail at its finest.
Now, barely a month after the passage of the bailout, we find out that Paulson himself knows his plan was totally misguided. The $700 billion was supposed to be used to buy up bad mortgage debt.
We were told this was such as good idea that the government would even make a profit from purchasing the loans.
Now, Paulson tells us this plan is totally unfeasible and is being scrapped.
We were told what the money would be used for, but Paulson lied. Where’s the money now? A lot of it has been used to buy up chunks of major American banks — not at all what Congress had voted for.
A motley assortment of desperate souls is now begging for the rest of the money — the cities of San Diego and Atlanta want bailouts and so do American automakers.
Most brazenly of all, several insurance companies including Hartford and Genworth have turned themselves into banks so that they can collect from the bailout as well. Hartford has been an insurance company for decades, yet now they suddenly declare themselves to be a bank and demand a handout.
Needless to say, the $700 billion is being completely wasted. While the original plan was destined for failure, it at least had a purpose and a desired outcome.
The new Paulson plan is nothing more than flinging billions of dollars at failing businesses and praying something good happens. The root problem was, is and will continue to be the excessive price of houses. Historically, houses have to sell at a price somewhat related to a person’s income. But over the past decade incomes stagnated while home prices soared.
This was an impossible situation; home prices have to fall before the economy is fixed — there is no way to alter the basic laws of economics. Wasting billions or even trillions of dollars of our taxpayer money won’t fix a thing.
I do take solace from the fact that Congress is starting to get angry at how they were used by Paulson, however.
On YouTube, there is a good example of this. In a video, Congressman Darrell Issa, R-Calif., can be seen grilling a treasury official, saying, “[You] talked about [bad loans] as if they knew what the hell they were. You got the money, and you immediately said, ‘what items, what auctions?’ . Those assets were what you said were locking up and destroying the market. When did you first hear that money would not be spent that way?”
Issa continued, suggesting that there may have been, “a team all along that had an alternate idea of how this money would be spent.”
As I said before the bailout passed, the goal was to funnel money from taxpayers to Wall Street’s elites. Instead of buying bad loans, our money was used to fund big banks so everyone could get their year-end bonuses as planned.
Well, we can sleep well at night knowing that all of Paulson’s buddies over at Goldman Sachs will be able to buy their new Ferraris this year.
Ian Bezek is a junior economics major. His column appears Tuesdays in the Collegian. Letters and feedback can be sent to email@example.com.