Tuesday, September 23, 2008

Financial Bailout

SEVEN HUNDRED BILLION DOLLARS - For those that may not quite grasp this - it is $700,000,000,000, and that's a lot of zeros.

So it will take $700B of taxpayers money to "bailout" the institutions that began this entire financial crisis to begin with, and exactly how is this fair?

Here is the rub, you and I are taxpayers - we go to work only to have our income taxes taken out of the wages we earn honestly, we go home to our homes that we are taxed on, and we go buy things with our discretionary income that are accompanied with sales tax. Then, if we get into trouble with our finances, we have to file for bankruptcy (or worse) and no one cares to help the individual. But now, all the taxes we pay is going to help the big business. It's that simple. The problem is our taxes are essentially being used to, yet again, make the rich, richer.
Martin Sullivan, former CEO of American International Group (AIG) resigned from the company in June of this year, after all of the "subprime" loans had already been issued - and what did he receive for his trouble? Nothing short of criminal - a $47 MILLION severance package. Excuse me? Here is one of the men that - at least - helped facilitate the subprime mess - and the ensuing financial collapse and bailout, and he received FORTY-SEVEN MILLION DOLLARS in an exit package to quit the company .... why are we not using his wealth to serve as means to help ease the financial burden proposed to the taxpayers?
October, 2007 - Merrill Lynch posts an eight-billion dollar loss and subsequently, CEO Stan O'Neal decides it is time to resign, himself. For all his efforts, which included the 8 billion dollar quarterly loss (quarterly loss projected out over a full year would have meant a loss of about $32 billion for the firm that year - if all held true) -so for Mr. O'Neal efforts, he was rewarded a 159 MILLION DOLLARS to leave the firm. Again, where is the outrage and why are the feds not looking at Stan O'Neal to help ease the American financial crisis?
Fannie Mae and Freddie Mac, you ask? Well, we all know their part in this debacle, but how about those CEO's that did nothing to quash the crisis at hand? Well, Dan Mudd, CEO of Fannie Mae, received $9.3 million for destroying his company - and Richard Syron, CEO of Freddie Mac, received $14.1 million - because he (deceptively I'm sure) renegotiated a clause to his contract two months prior to the collapse, knowing the company was headed for disaster ... and again, all of this is perfectly LEGAL and often practiced in the firms of Wall Street. Yet again, instead of the feds going after those who initiated and created the mortgage crisis to benefit their personal bottom lines, the taxpayer - who had little choice in the mortgage fiasco and none of the profits - are left holding the bag.

I mentioned in a July post, The Mortgage Crisis - and How to Fix It, that maybe the federal government should subsidize the local municipalities - in essence, eliminating the property tax on the public's private residencies. My plan, however, I figured would not be prudent because of the sheer amount of government spending that would be needed to subsidize such municipalities. However, in light of the proposed 700 BILLION DOLLAR bailout, I no longer think eliminating (or simply suspending - or even just easing the increases) property tax is such an absurd solution.
In my plan, everyone would benefit. Think about it - Joe Neighbor would be able to keep his home - because he could afford the mortgage all along, just not the increase of taxes (and for those that CAN'T afford the mortgage readjustment - that solution is so easy I feel stupid even needing to voice it - DON'T INCREASE IT - the bank will get the interest of the rate agreed upon, and Joe Neighbor still keeps his home). So we have Joe Neighbor benefiting from a "no-property-tax-clause", but so to will the banks - because they won't have an over-abundance of foreclosed upon homes - and they will still receive all the interest from the current homes on the market. Seems like a win-win. Also, the taxpayers will not feel as if they are "bailing out" the financial institutions that began this mess - they'll feel much better knowing their tax money is being used to HELP THEM - you know, the way the government SHOULD help the people - after all, it is a government FOR THE PEOPLE still, right?
$700,000,000,000 could be far reaching if the government used this money where it should go - to help the average person (** see below note). The bailout will do nothing but keep the wealthy, well, wealthy - and create an even bigger divide between rich and poor. Just because the banks are bailed out, that does nothing for Joe Neighbor who has lost everything (home included) due to his increase in interest rate and home property taxes - which all began because big business was greedy and told Joe Neighbor that he could afford a loan that he obviously couldn't. Sure, Joe Neighbor is partially to blame, but so are the financial institutions, and if they are going to be bailed out, then why is our friend Joe Neighbor now homeless and without a job? How is this a viable solution to a horrendous problem?
Even if you have little sympathy for Joe Neighbor, you should have less sympathy for those "smarter than that" that created this issue - the financial institutions that knowingly pushed risky loans (including such a thing as NINJA loans - No Income, No Assets, No Problem - loans). So now, instead of resetting Joe Neighbor's interest to something manageable, they (the financial institutions) have an over abundance of homes on the market and all the money in the bank. Meanwhile, even if you've made all your home payments and taxes payments on time - well, sorry for you because even you have suffered while the rich get richer - because now your home value is worth much, much less than when you purchased it. No worries though, the bank will hold your money (thanks to the government for keeping them so liquid) until you decided to sell, then they'll take your money to make up the shortfall you'll likely have when the time does come for you to sell your home.
Indeed don't worry - the rich have taken their payouts, they have sold their souls, and they have the government backing them in their endeavor - just in time to keep the rich living handsomely. We The People of the United States of America should be outraged - but instead, most are accepting the proposed bailout as the "only way." But if they weren't so greedy to begin with, none of this fiasco would have ever happened, and we'd all be living just fine in a home that is, not only cheaper (thanks to the subprime lending not inflating the value on homes), but that carries less taxes due to its cheaper state - seems the government turned a blind eye to the banks to drive home prices up, thus pushing up the taxes for many homeowners - just in time to turn around and return the favor by scratching the financial institutions backs.
I, for one, am outraged and see a more win-win-win solution if the government truly wants to step in and help, but the problem is, they need their corporate cash, and thus the every day American just trying to manage a living are forced to suffer through life - meanwhile funding the bailout that has paid ex-CEO's MILLIONS to run their company into the ground.
It must be the American dream!

Note: As of July 1, 2007 the Census Bureau estimates the total number of homes in the United States as being 127,901,934 - of which I will round up to 128 million homes. Given this, I will assume each pays taxes to a local municipality - and if the $700 billion were used to subsidize the local municipalities (based on what the municipality would receive from the property tax) then the government could pay $5,500 PER HOME in the U.S. to the local municipalities to help ease the burden on the individual tax payers that are being priced out of their homes due to the absurd nature of the property tax.
So again, if we suspend this tax, it is the best win-win situation - the homeowner (and tax payer) feels justified that their taxes and their government is helping them - and the mortgage loans on the financial institution books will continue to be paid (thanks to the homeowner having more money in their pockets to actually make their mortgage payements). I realize this may be a short term solution, but if you truly think more foreclosures won't follow due to the current proposed bailout, then I believe you to be naive - and no one can truly say if the bailout of the institutions will only turn into a short-term solution as well. But if given a one year suspension on property taxes, more people will find a way to make the mortgage payments and thus spur the economy - and those that have not been affected will have an extra (on average) $5,500 in their pockets to also put back into the economy. I don't see why the individual homeowner is being forgotten by the government during their time of need - only to watch the rich and greedy (likely borderline criminal) benefit from the financial crisis.

Side Note: So Federal Reserve Chairman Ben Bernanke warned today, as he attempted to get this bailout plan passed, saying that lawmakers risk a recession with higher unemployment and increased home foreclosures if they fail to pass the proposed plan.
Well, my question is, how is bailing out the LENDER going to help prevent the BORROWER from foreclosing? Think about that one and please let me know if this logic in any way makes sense because I'll be honest with you, I miss the point on this one. If people are going to foreclose, it doesn't matter if the financial institute has money or not, the end user (the home buyer) won't have any money to pay their mortgage with or without the financial institutions being bailed out.
Granted, it if the institutions fail, there will be increased unemployment (as those people lose their jobs - but there is no guarantee for a loss of their jobs anyway) and there will be an increase (likely) from these individuals foreclosing, but again, it doesn't help the public as a whole. And besides, some of the people within the companies that will benefit from such a bailout, are likely those same individuals that pushed the "subprime" loans - do they really deserve to be bailed out? It seems to me like more political propoganda put on by the government - everything sounds good on paper, but in reality does nothing to help the average American citizen.

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