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