Economic Bailout Causes

The news is slowly emerging with the truth about the causes of the economic bailout. Numerous major news outlets as well as the the comedy show, Saturday Night Live, are slowly revealing the underlying causes of the bailout. Will the public examine and digest what they are telling us, or will we ignore the causes and go about our merry ways hoping that $700 billion will ameliorate the causes of the economic bailout mess?

While greed on the part of Wall Street, our financial institutions and those seeking mortgages and instant housing market wealth is credited with creating the problem and the subsequent economic bailout, one has to wonder what created the climate of greed that fueled the crisis. Look no farther than the Congress of the United States. The same people that invited America to participate in the greed party are now tasked with implementing the economic bailout.

Can one really blame those that attended the party? Have you ever been to a promotional event that promises something for free? That type of promotional gimmick always works and the affairs are always crowded as we seek to get something for nothing. The home mortgage market became a "something for very little" party as the requirements for obtaining a mortgage were adjusted, altered, and minimized. Mortgages were made available to purchasers that might not otherwise have qualified. The seeds of the current economic bailout were sewn by our government. The government secured the financial activities of the major mortgage lenders Freddie Mac and Fannie Mae and consequently loan origination institutions joined in the greed party and collected their commissions by approving billions of dollars for mortgages that ultimately failed. Simply put the root causes of the economic bailout fall squarely on our government. They sponsored the party and now every sensible and responsible American will pay, whether they attended or not.

There is another financial instrument that has blossomed over the last decade due to many financial institutions being exposed to the the risk associated with mortgage loans to those that might not be credit worthy. It is the Credit Default Swap (CDS). A CDS is in essence an insurance policy against potential loss. They are called "swaps" to escape the government regulations that would apply to insurance. In this large unregulated environment financial institutins purchased "swaps" from other large financial institutions like Lehman Brothers, AIG, JP Morgan and others. The mortgage crisis that precipitated the economic bailout created an event where the CDS insurance was called upon to be paid to cover defaults. But alas, because the CDS market is unregulated the firms that had been selling them and reaping huge premium profits did not have the funds to pay the claims. Here again the US Government knew of the potential problem, but failed to take action. The greed party proceeded in unabated fashion.

Over the last decade, Congress has applied the "chicken in every pot" mentality made famous in the 1929 presidential elections to mean that all Americans have an entitlement to own a home. According to the New York Times, starting in 1999, there were signs that a crisis might be looming. Some Republicans sought tougher oversight, but were ignored. Votes in the relevant Congressional committees to reign in Freddie Mac and Fannie Mae were always along party lines. Republicans wanted tougher oversight and Democrats wanted all to own a home regardless of their financial condition. The major lenders celebrated, approved more loans and the executives at Fannie Mae and Freddie Mac reaped huge rewards. Franklin Raines the CEO of Freddie Mac earned $90 million during his tenure. Give a credit card, instead of a job, to a homeless person and the same economic bailout result could be predicted.

There is now $700 billion less in our treasury or more accurately added to the debt that America already owes. Our national debt now exceeds $11,000,000,000,000 (11 trillion). That's almost $37,000 for every single American citizen. If any citizen rich, middle class or poor thinks that they will not be affected, they are sadly mistaken. The effects may be obscured by inflation, growing joblessness, rising prices or some other economic fallout, but the end result is less money in everyone's pocket. That's scary, but wait there's more!

What are our presidential candidates telling us? They both have supported the economic bailout, but Obama is promising national health care which will be underwritten by our government and McCain is suggesting that government size be reduced and expenditures be frozen except for national defense and other critical programs. Can America stand the truth?

Sadly, one can surmise, based on the past behavior of millions of Americans that the vote will be for the candidate that promises us the "chicken in every pot." That promise can not possibly be kept as the money has been spent, but the call of something for nothing is just too alluring to ignore. Why should one save or plan for the future, when the government will provide for us? Or will they just make a promise and send us down the road to ruin? The facts about what really happened are available - will anybody check?