Your Bill for the Bailouts

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The Federal
Reserve System’s bailout of American International Group will cost
$85
billion
. After the expense is apportioned among three hundred
million American citizens, your personal bill for AIG’s bailout
will be $280. If you have a family of four, their share is $1100.

Do you feel
that you’re getting your money’s worth from this bailout? Has the
AIG bailout been a rewarding experience for you and your family,
well worth a thousand dollars subtracted from the college funds
of your children so that a CEO
who crashed his company
can afford a mansion in the Caribbean?

Here’s another
way of looking at how much the AIG bailout has cost you. The average
commuter uses about six
hundred gallons of gasoline a year
, and gasoline has gone up
about a
dollar a gallon this year
, for a total cost increase of $600.
Yet that’s only roughly half the cost per family of the AIG bailout!

Strangely,
the public seethes over gas increases but yawns over bailouts. Maybe
it’s the lack of visual impact. Maybe people would react more if
they had to pull into a "Federal Reserve Station" and
watch their life savings pumped into the tank of a corporate bailout.

They might
react even more strongly when they see that the line at the money
pump is growing. Only months ago the Federal Reserve provided the
investment bank of JP Morgan with $30
billion
to bail out the investment bank of Bear-Stearns. At
least the math was easy: thirty billion dollars divided by three
hundred million people is $100 for every man, woman, and child in
America, or $400 for a family of four.

Hey, aren’t
the antics of the investment bankers every bit as entertaining as
the internet access you’ll have to cancel in order to pay for them?

Besides becoming
more frequent, the bailouts are swelling. Now the government is
"rescuing" Fannie Mae and Freddie Mac, the mortgage industry
corporate giants whose "official" bailout cost rose from
$100
billion
to $700
billion
in a year, and in reality could cost $2.5
trillion
. That’s over $8,000 for every American — $32,000
for a family of four!

The pretext
— er, justification — for the bailouts is that these mortgage-financing
companies help families buy homes. Really? This may come as a shock
to millionaire presidential candidates, but when the government
slaps on a $32,000 bailout surcharge, middle class families find
it harder to budget for a monthly mortgage payment.

Anyhow, there’s
something fishy about the government mortgage-guarantee game in
the first place.

Say that two
prospective home buyers want to buy the same home. The bank gives
them each a line of mortgage credit of $400,000. Not surprisingly,
they bid against each other until the selling price of the home
reaches $400,000.

Now, suppose
the government "helps" them by giving each a "government-guaranteed"
line of mortgage credit of $500,000. They bid again — until the
selling price of the home happens to reach $500,000.

Say the government
"helps" again, and their lines of "government-guaranteed"
mortgage credit are increased to $600,000. Where does the bidding
stop now?

Do government-guaranteed
mortgages help home buyers? I can see how sellers are helped. I
can see how bankers get an extra special helping. But it sure looks
like the buyers are being "helped" into a sub-prime meltdown.

In a free market,
mortgages help families afford homes. But when we underwrite mortgages
with public funds, we leave the free market behind and enter the
realm of the welfare state. Worse, the "welfare checks,"
so to speak, are given to the middle class only to be immediately
endorsed over to the real estate industry.

We’re told
that allowing Freddie and Fannie to fail would be economically devastating,
but what about the economic impact of a bailout that costs $32,000
per family? For a middle class family, that kind of income loss
is like enduring a severe recession. Except that if you were unemployed,
you wouldn’t be slaving overtime to pay for an incompetent financial
manager’s yacht.

Politicians
claim the financial industry needs
more regulation
, but when I’m being robbed I don’t want the
cops to subsidize the robbery and I don’t want them to "regulate"
it either. I want them to stop it. When they don’t, I smell a payoff.

The call for
regulation is, of course, just a dodge to avoid public debate that
might challenge the philosophy of government intervention on behalf
of the Friends of the Fed. The goal is to keep billing the citizens
no matter the cost. For while in the eyes of politicians these companies
are "too big to fail," you and I aren’t too big to fleece.

September
23, 2008

Joe
Schembrie [send him mail]
is a writer who lives in Bellevue, Washington.

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