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.