Henry Srebrnik, [
U.S. President George Bush last week appealed to the nation to support a US$700 billion rescue for the nation’s financial system in order to avert a credit market collapse.
After much wrangling, Congress has acceded to his demand, lest the economy fail.
The bill authorizes government intervention to buy distressed debt – mortgage-based securities and other assets – from private firms currently stuck with them, with the tab picked up mainly by the taxpayers.
Legislators did put in place some safeguards, including close supervision of the program by an oversight board and the creation of a privately funded insurance program for mortgage-backed securities. They also limited compensation to executives of corporations that would be covered by the rescue plan and allowed for more help to homeowners facing foreclosure.
A part of me hoped the U.S. Congress would refuse to bail out the fat cats on Wall Street and let them go under. I realize that, unfortunately, many innocent victims of their greed would go down with them, but it’s the price Americans would have to pay for allowing their leaders to condone such legalized robbery.
To use an expression beloved by some, “short term pain for long term gain.”
America has been living beyond its means for years. George Bush went to war and – incredibly – lowered taxes on the rich. He told Americans they could show their patriotism by “going shopping.”
Don’t blame only Bush. The Clinton administration was just as culpable.
Since the late 1990s, the personal savings rate in the U.S. has plunged to almost zero from 3 per cent of income, according to research by Innovest Strategic Value Advisors Inc. Credit card debt is up 80 per cent.
In 1999, mortgage giant Fannie Mae came under increasing pressure from Bill Clinton to expand mortgage loans among low and moderate income people, and felt pressure from stock holders to maintain its phenomenal growth in profits. And so the so-called sub-prime mortgage market, now at the root of the financial crisis, grew until it became a giant house of cards.
The current crisis was not caused by greedy executives breaking laws.
What they did was perfectly legal. It resulted from increasingly lax government regulation.
In 2004, for instance, the U.S. Securities and Exchange Commission (SEC), the agency with primary responsibility for regulating the securities industry and stock market, loosened the rules governing the amount of debt major investment banks could assume in their trading activities.
The Wall Street financiers have been allowed to in effect “print” money at a pace counterfeiters can only dream of. Read this and weep:
*In 2007, the CEO of a Standard & Poor’s 500 company received, on average, $14.2 million in total compensation, according to the Corporate Library, a corporate governance research firm.
*Lehman Brothers chairman Richard Fuld Jr. made $34 million in 2007; the firm went bankrupt a few weeks ago.
*Insurance giant American International Group’s Martin Sullivan got a $14 million compensation package in 2007; the insolvent company has now received $85 billion in a federal bailout.
*Stock brokerage Merrill Lynch CEO John Thain was paid $17 million in salary, bonuses and stock options in 2007; his company too has ceased to exist.
*Washington Mutual, the country’s largest savings and loan bank, nearing collapse, was seized by federal regulators last week. Its new chief executive, Alan H. Fishman, who has been on the job for less than three weeks, is eligible for $11.6 million in cash severance and will get to keep his $7.5 million signing bonus, according to an analysis by James F. Reda and Associates.
There are many more such stories; these figures come from the filings made by these companies to the SEC. No one could possibly be worth the obscene amounts paid to these people – even if they hadn’t run their companies into the ground.
Since there really is a finite national economic pie, this left less on the plate for others, including minimum wage workers who can’t afford a doctor for their sick children.
And more than a million people have lost their homes through foreclosure in the last two years, among the other consequences of this debacle.
A financial crash, like a lost war would have provided a salutary lesson, a form of “tough love.” Now, within a few years we’ll just be back to business as usual as people forget the lessons learned from this mess.
Americans failed to elect the kind of politicians who might have prevented this. They will now have to learn to live with the consequences
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