Remember back in mid-September when Senator McCain parachuted into Washington to save the day when Treasury Secretary Henry M. Paulson, Jr. warned that life as we know it would disappear forever if Congress didn’t pass his bailout plan within about 24 hours?
Congress, ignoring McCain’s ludicrous Superman impersonation, balked, taking their own sweet time to hand over the $700 billion in taxpayer dollars (borrowed from China, Saudi Arabia and elsewhere), that Paulson, in his reverse Robin Hood disguise, demanded as condition for saving the United States from the Great Depression II.
Paulson’s idea back then, with the support of Fed chief, Ben Bernanke, was to buy up “troubled assets” (that is, those thousands of toxic mortgages in the form of convoluted derivative paper even the investors who invented them don’t understand) to keep the banks and brokerage houses from going belly up which, if allowed, would reduce the country and everyone in it, Paulson implied, to living in refrigerator cartons.
Congress caved and before long, Paulson had more money in hand than even Croesus could have imagined. But by then, Paulson had a new idea, he said:
Forget those toxic mortgages. Instead, he would use the first $350 billion to purchase stock in the banks that had been too blinded by greed to recognize their stupidity and approaching demise. In other words, partially nationalize the banks (an idea Congress had floated before caving in to Paulson’s original scheme) which would, with a bunch of cash in hand, reopen the lending doors they had slammed shut.
By Wednesday this week, Paulson had doled out about $290 billion in corporate welfare (see list here), but the recipient banks refused to use it for loans to keep their customers going. (Is it too thickheaded for someone as unversed in economic matters as I to inquire why such loans were not made a condition of accepting bailout money?)
So then, Paulson had a third idea, he said on Wednesday:
Now, he “hopes” (yes, “hopes”, according to The New York Times) to use $50 billion to create a new lending program run by the Federal Reserve to induce non-bank companies that finance car loans, student loans and issue credit cards to start lending again.
Although Mr. Paulson was short on details in his Wednesday announcement, apparently these companies, unlike the banks, will make loans to real people, although so far there is no indication that making such loans is any more a condition for accepting bailout funds than with the banks.
Meanwhile, the big three Detroit auto makers are down for the count, but Paulson made a point of saying they are not included in his newest bailout plan (one wonders if that statement carries any more weight than his previous ideas), so House Democrats are busy as we speak drafting legislation that would infuse the auto companies with a quick $25 billion. Other lawmakers want to put off any infusion of cash into Detroit until the new administration takes office.
On another front, earlier this week, President Bush announced a plan for Freddie Mac and Fannie Mae (of previous bailout fame) to fast-track restructuring of troubled mortgages they control so borrowers can avoid foreclosure. Given that Paulson is ignoring homeowners, it's not a bad idea except that the two companies control only a small percentage of the three or more million bad mortgages.
To fill up that gaping hole in Bush's plan, reports The New York Times, administration officials (here’s that word again) “hope” other lenders will follow Freddie’s and Fannie’s lead.
To add insult to all this apparent confusion and incompetence, it was reported Thursday evening by CNN that many of the beneficiaries of our government's corporate largesse have set aside billions of bailout dollars for annual bonuses next month. Did Paulson "forget" to include a condition forestalling this outrageous greed too?
If the stock market is to be the measurement of how recovery efforts are going, all this hope and all these maneuvers are not working as the Dow, NASDAQ, Fortune 500, etc. spike wildly each day, usually in a southerly direction.
(ASIDE: The most grievously cynical part of me wonders if there was a sudden financial crisis in mid-September at all. The Bush administration has spent eight years deliberately draining money from the middle class to pass along to the richest few. Could this "crisis" be a phony emergency - one last effort, since the bailout funds are borrowed from other countries, to capture even future funds before Bushco leaves office? Could it have been part of the plan all along? Could anyone be more cynical than I am to entertain such fantasy?)
For the few who have slogged through this far into today's post, what I want to get at is that in all the helter-skelter, haphazard scrambling by the federal government to avoid a full-scale depression, there has been not a word about elders, retired people, and people near retirement.
Reports tell us that individuals have lost more than $2 trillion from their savings in IRAs, 401(k)s and other kinds of investments. This is terrible for people in their 20s, 30s and 40s, but it is tragedy on a scale of grand opera proportions for old people because they will not live long enough to recoup their losses and will spend the rest of their lives scraping by, including those who did all the right things, saved their money and invested it safely – or so they thought.
A couple of days ago, Jan Adams of Happening Here, left a comment that said in part:
“Yesterday I heard that yet another of my retired friends has lost half of his income which came from a real estate investment trust he unwisely had counted on. His mistake certainly, but really, most of us aren't qualified to evaluate investments. We may have other wisdom, but not financial wisdom. I blame the peddlers of these dubious "securities" for taking advantage of the trust of millions.”
The operative phrase in Jan's note is “most of us are not qualified to evaluate investments.” Yes, and we relied on those “peddlers” Jan rightly blames. A large portion of my 30 percent loss is due to a Lehman Bros. bond. When I asked my peddler how smart it was to put that much into one investment, he replied that the interest rate (not all THAT much) was greater than most and the entire economy would need to collapse for Lehman’s to go under.
I remember saying at the time that I wasn’t so sure that wouldn’t happen. My advisor assured me there were too many regulations for such a disaster.
Obviously, I am not an economist. But they tell us repeatedly that consumer spending is two-thirds of the economy. Yet the first thought from Secretary Paulson was to bail out the banks. The bailout has now been extended to auto manufacturers, non-bank lenders, mortgage loan guarantors and only Paulson knows what other industries will be included next.
As I said, I’m not economist, but wouldn’t it be more productive to devise a plan that would put money into the hands of consumers instead of banks so people would continue to spend thereby keeping the economy moving? I have no idea what that kind of plan that would be. That’s for people like Henry Paulson to figure out, although it doesn’t appear likely to happen.
And I’m not saying that some money shouldn’t be used to shore up some banks along with other businesses and institutions. But if spending is what makes the economy go ‘round, what sense does it make to ignore the biggest driver of that economy? And a part of any such plan should be a program to help elders who have lost large portions of their savings before they start needing to eat cat food to survive.
Since aside from West Virginia Senator Robert Byrd, who will be 91 years old next week, there are no old people at the highest levels of the federal government, who speaks for elders in this financial crisis?