and the
Citizens Economic Research Foundation

Barbara's Column
September #4

Time for government -- and citizens -- to start living within their means
by Barbara Anderson

The Salem News
Thursday, September 25, 2008

Trying, but can't ignore the elephant in the living room the latest government bailout thing.

The elephant's in the way because I need space in the living room for the kitchen furniture while Home Depot is replacing my kitchen flooring, which I bought with my federal government stimulus check, which the government couldn't afford any more than it can afford the bailout, being in debt as it is by several gaztrillion dollars.

We practicing fiscal conservatives can explain how the elephant got here. My dad taught me the basics: Never lie; be sure you read contracts before you sign them; borrow only for major expenses that you can't save up for; and, here's your college money, when it's gone it's gone.

On the last point, I learned the hard way that he meant it. No bailout for Barbara!

And I got through the rest of my life without ever expecting one or bankrupting myself, while being philosophically opposed to government bailouts of everything from Chrysler Corp. to the savings-and-loan industry.

So I get the roots of the mortgage crisis. Back when people like my father were in charge of America, everyone needed a down payment in order to get a home mortgage. This vested them in the property, which they worked hard not to lose if times got tough.

Then the government got involved. Politicians bought votes by making home ownership easier, by forcing banks to lend to people who weren't good risks.

Then people who actually could afford a home borrowed for more home than they could afford, one reason for the McMansion plague. The government started backing up bad loans, allowing risk to be minimized, and eventually individual bad judgment turned into a national crisis.

One thing I didn't get: How do the CEOs of these failing companies walk away with multi-million-dollar payouts?

So I called my friendly accountant, John Cunningham, who explained that after some businessmen lost everything and jumped from tall buildings in 1929, the next generations started demanding contracts that took care of them if the business failed.

If a company is in trouble, its directors must approve fabulous contracts in order to get top talent to take on the project. Similar contracts then were expected by other executives.

I still don't get the bonuses they receive when the company goes south.

Regardless, the business leaders with the payouts will not be going to jail as some understandably outraged commentators have suggested. Nor will borrowers who lied about income on mortgage applications, or those who passed bad-risk mortgages into the investment mix. There's no room in the jails anyhow for every greedy user of the flawed system.

Those of us who understand how we got here at least aren't shocked by the sight of chickens roosting.

But we don't have an easy way out either.

Looking for a hint, I watched Talking Head TV on Sunday. Treasury Secretary Henry Paulson seemed to be hyperventilating as he pushed his proposal to "do something." Very reassuring.

Various politicians sounded much more confident as they attacked, blamed and strutted. This is what politicians do, even when they are complicit, clueless, or both.

Some politicians with ideas are wrong. Congressman Barney Frank is insisting that more money be added to the bailout for "homeowners."

Barney, they can't pay the mortgage, therefore they own nothing!

Anyhow, we can't bail out everyone and everything that fails, with money the government doesn't have without printing enough new money or raising enough new taxes to utterly destroy the economy. If the government had never bailed out anything, individuals and businesses would have adjusted their expectations accordingly and taken fewer risks.

The government should never have exceeded its constitutional authority by getting involved in the economy beyond the provision of essential services and oversight. But it did, and now it must reassure us that we have no reason to fear the impact of its mistakes on our own small savings.

My accountant friend says that the FDIC really cannot be allowed to fail, so our insured deposits in our local banks should be safe. Years ago he advised me to be happy with just a safe place to keep my money, with a small return keeping up with inflation.

This current crisis is just a symptom of the Big Problem, which is: Too Big Government working with or against Big Business (probably depending upon campaign contributions); and don't forget Big Labor, which will someday want its own unaffordable benefit liabilities bailed out by taxpayers.

But all of us have to take some responsibility for what we allowed our institutions to become. Some ordinary folks also got greedy and became part of the problem, while others just weren't paying attention.

Of course, paying attention doesn't help if we are lied to; this is why lying, not money, is the root of all evil. We can manage our own money in an honest, transparent economic system.

This current crisis may be our chance to turn things around before it is too late. The only solution is Bigger and Better People: Each of us, telling the truth, reading our contracts, living within our means, not expecting handouts or bailouts, working for limits on the big institutions, and voting as wisely as we can.

Barbara Anderson is executive director of Citizens for Limited Taxation. Her column appears weekly in the Salem News and other Eagle Tribune newspapers; bi-weekly in the Tinytown Gazette; and occasionally in the Lowell Sun, Providence (RI) Journal and other newspapers.