Thursday, October 2, 2008

A prospective of the Bailout from a 23 year old.

The following was sent to me by a fellow education reformist from his daughter.

Dear Andrea [my daughter]: There’s a simple explanation:

There are a bunch of criminals that we call “Congressmen”. These criminals make a very nice living by stuffing their pockets with kickbacks from companies who pay them in return for favorable tax exemptions (such as the exemptions that were “ridered” onto this very bill, for example) and with favorable regulatory policy that allows the contributing companies to make tons of money at the expense of taxpayers. Congressmen attach these sorts of riders to almost every bill that they write, even if the bill has nothing to do with the nature of the rider, so you can be assured that our Congressmen are not going to starve, since they are robbing you each and every single day, all day.

Congressmen, commercial banks and investment banks have been gorging themselves for decades via the use of two government regulatory agencies called Fannie Mae and Freddie Mac. These agencies (disguised as corporations) effectively allow the banks to make tons of money (fees, interest, commissions) writing unsound mortgages. Fannie and Freddie make this possible by guaranteeing the banks that all mortgages the banks write, no matter how ridiculous, are guaranteed to be paid back. In return for Fannie and Freddie, of course, the banks ensure through various indirect means that their friends in Congress will be very, very rich indeed.

Congressmen and the banks have been enjoying the windfalls of this policy for so long that Fannie Mae and Freddie Mac could not actually buy up all the bad mortgages that they had encouraged and/or required the banks to write. So the banks themselves actually hold a significant fraction of these bad mortgages, and even with the bailout of a few weeks ago, Fannie and Freddie cannot repay the losses from those mortgages.

Since the banks cannot get repaid for all the bad mortgages they hold, they are suffering from some degree or another of financial failure. Many have already gone bankrupt or have been acquired by other banks. But even the surviving banks are now largely incapable of raising money, since their balance sheets are no longer positive enough to warrant any sane person lending them anything.

Since the banks cannot borrow money, even from each other, they also cannot lend money. That means that your home equity line might evaporate, and that you’re less likely to get a mortgage or business loan if you want one. Since business loans are now gradually freezing up and since essentially all business runs on credit in one form or another, this inability to lend/borrow money could quite literally lead to another Great Depression.

So the criminals in Congress are now in the position of bailing out their cohorts in the banks, otherwise they face being dumped onto the street in this next election and thereafter having to actually earn a living, possibly even honestly. Since we can’t have such a thing happen, this means that our Congressmen are going to take $700B of your and my money to replace the losses that the banks are now sustaining as a result of the decades of fraud from which they and their friends in Congress have been lavishly profiting.

Remember that all of this is for a good cause. Fannie and Freddie have been the single most destructive and hidden surviving remnant of the failed “Affirmative Action” policy of the 1970s. Since the bulk of the subprime mortgages went to people of a different color than you and me, we cannot criticize this program because that would make us racists.

Do you understand now? -Dad

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