Awhile back I wrote about how the Federal Reserve is busy concentrating power in the hands of the wealthy. Then WildDerrick wrote about how the govt. was taking over Fannie Mae and Freddie Mac. I responded with a post on how powerful the Federal Reserve really was.
Now if you're a quasi political participant like myself you may or may not have noticed that President Bush recently proposed a bill giving the government the authority to purchase 700 billion USD in subprime mortgage loans from the largest banks which are likely to collapse otherwise. As I understand it, there will not even be any stipulations on that money. It is more or less a blank check to the faultering banking industry.
Aside from the fact that such a bailout is plainly and obviously wrong, unfair and unjust it is further evidence that if we don't watch out the federal government and the federal reserve [which is not part of the government, but is in fact a privately chartered bank) will even further concentrate the wealth of this country into the hands of the ultra-wealthy.
In the most likely scenario a 700 Billion USD buy out of rotten subprime mortgages will play out as follows:
- Bad mortgage securities bought by some extension of the govt. in the amount of 700 Billion USD. The banking industry doesn't learn from their mistakes, and is allowed to continue on without cleaning out the dirty corners of their business. They understand now that risk is spread out amongst the citizens of the US while the financial gains are simply theirs to keep.
- A few years later, those securities will be auctioned off on the market. Managing thousands of homes is not in the interest of the govt, it would simply be too expensive.
- The glut of houses for sale will only be able to be purchased in cash as houses at auctions almost always are.
- The only ones with large amounts of cash are the ultra-wealthy who will pick up the mortgages and the houses for pennies on the dollar, perhaps as little as 30-50% of what they are really worth.
- A few years later those same houses will likely be flipped back around for their true value, albeit less than 2007's inflated prices.
- The wealthiest folks, like Warren Buffet, will have now aggregated even more wealth under their belts.
What can we do about it? Write to your congressman (yes it's still possible) and tell him to vote no on this bill. If he/she votes yes, simply refuse to vote for him in the future.
It's time we hard working citizens and taxpayers refused to be the risk reducers for the ultra-wealthy.
Links (Thanks Nathan):
Dave Ramsey's synopsis http://www.daveramsey.com/etc/fed_bailout/economic_cleanup_10887.htmlc
How you can write your senator: http://www.senate.gov/general/contact_information/senators_cfm.cfm
update: At today's T-bill rate of 4.4% (20 years) the total cost of a 700 billion dollar bailout would be about 1.67 trillion USD. This averages out to be about $16k per household in the US.