Bailouts Through American History

Bailing out failing sectors of the American economy isn't unique, and there is a handy chart now available at propublica.org. The chart has converted the financial exposure into 2008 dollar terms, so that it is comparing apples with apples.

The first bailout was of the Penn Central Railroad, which eventually brought us Amtrak, and in cost terms totaled $3.2 billion. That was during the Nixon administration. OK, socialization of the railroads occurred during a Republican administration.

Actually looking down the list, all of the bailouts, have occurred during Republican administrations! Lockheed, Franklin National Trust, Chrysler, New York City, the Savings & Loan debacle, the airlines after 911, and now this financial mess.

Should that be telling us something about how Republicans govern or more accurately, fail to govern, with their free market deregulation and the resulting greed factor when left to self-regulation?

Last night on Bill Maher, Andrew Sullivan , the conservative writer who hates Bush claimed that this current financial crisis was brought on by the stupidity of American people who bought homes they couldn't afford with mortgages that they couldn't afford. He laid everything on individual irresponsibility. Naomi Klein, the author of "The Shock Doctrine" countered that the crisis is the result of the "ownership society" tauted by the Bush administration that resulted in massive profits for the same companies that are now verging on bankruptcy. The bailout might mean the loss of social programs, perhaps even the privitization of Social Security, if the wrong people get elected in November.

Without counting in the cost of any upcoming legislation that might shore up the banking industry, so far in the last few months, the Bear Stearns, Fannie and Freddie, and AIG bailouts have cost $315 billion.

In 2005, Congress, at the behest of the credit card industry, passed a new bankruptcy law, that makes it harder for consumers to file for bankruptcy, and to insist on credit counseling before one might file. See this comprehensive and accessible article on the new law.

Under the new restrictions, consumers have to pass a means pre-filing test to determine whether they can discharge all of their debt, including credit card debt, or be forced into an onerous pay-back schedule. In addition, a consumer's net worth has a higher valuation formula, there is more paperwork and consequently, higher attorney's fees to file.

So, let's get this right: deregulation allowed mortgage companies to engage in knowing fraud when they sold consumers mortgages based on unverified income and facially unaffordable rates, often in neighborhoods that had previously been red-lined. The mortgage brokers were paid commissions based on percentages over risk assessment. Money, money, money. These mortgages were bundled and resold as highly rated secure investments, rather than dangerously unsecured ones, to financial institutions around the world. Money, money, money. Once the housing bubble burst, the government is bailing out the same financial institutions that profited from their greed and complicit fraud. But now the consumers, the ones who can't afford to live in their homes anymore, have a rough trail to hike in order to file for bankruptcy.

This is why Congress has to make sure that any upcoming legislation includes consumer relief. Otherwise, ordinary people will have no recourse and no hope of ever getting out of debt. Unfortunately, too many people borrowed money from their credit cards to pay monthly mortgage bills, and those trailing balances, as we know, are charged usurious interest rates. I've heard of trailing balances getting hit with 30% interest charges!

This is probably why there has been an increase in support once again for Obama.