Earlier in the week I jokingly suggested that the federal government was limiting itself to one financial industry bailout per day. Well, that was sure wrong.
Let’s review the week so far:
- The Fed announced it will lend even more to financial institutions (many of them not under the Fed’s regulatory authority) in exchange for even more dubious collateral than before. This allows everyone to continue to pretend that the collateral, such as some subprime mortgage backed securities, is worth more than it actually is, which in turn allows everyone to pretend that financial institutions have more money than they actually do.
- Because the Fed has run low on funds due to all of that lending, the Treasury announced it will borrow more money to give to the Fed so that they can keep up their lending and continue the charade described above.
- The Fed nationalized insurance giant AIG (also not under its regulatory authority).
- The Fed pumped a hundreds of billions of dollars into the system both domestically and globally via loans to foreign central banks.
- In an fit of open market manipulation and blatant industry favoritism, the SEC banned short selling for 799 financial stocks.
- The Treasury announced that it will earmark $50 billion to protect the value of money market funds.
- This is the big one. The Treasury announced that it will start using taxpayer money to take junk assets off the hands of financial institiutions. Remember back in the housing bubble when you asked yourself what idiot was making these super risky mortgage loans that would clearly never be paid back? Turns out that in the end, it was you (and the rest of the taxpayers).
For years, almost without exception, politicians and regulators have studiously ignored the mounting financial system risks despite the fact that they were growing ever more obvious (we’ve been writing about them here at Voice since 2006). In fact, many of our leaders cheered on the “financial creativity” and encouraged, by word or policy deed, further risk taking. Now that the consequences have arrived, they are panicking and throwing vast amounts of your money at belatedly fixing the problems that they so recently denied even existed.
Our heavily indebted federal government does not actually have the hundreds of billions of dollars required for the various financial industry handouts. The money will have to come from somewhere, be it via borrowing, increased taxation, or the metaphorical dollar printing press. In the end, it is the nation’s savers and taxpayers who will end up on the hook.
— RICH TOSCANO