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The old saying, “Do as I say, not as I do,” certainly came to
mind last week, when I learned Uncle Sam shelled out $30 billion to
bail out the former financial giant Bear Searns. President George W.
Bush applauded the federally-backed Bear Stearns buyout. The president
called the move strong and decisive. Many across the United States
disagree with Junior’s take on this, and wonder why Wall Street gets
federal help and ordinary people don’t.
It’s incomprehensible to me that during a time when millions of home
owners are facing foreclosures, and our country continues to slide
towards the most drastic economic downturn since the Great Depression,
President Bush would approve a $30 billion bailout for the likes of
Bear Searns. Bush supporters claim the $30 billion is money well spent.
It will help shore up the sinking ship, and alleviate a domino-like
crash of Wall Street. And the “trickle down effect” will actually keep
more of the “little people” from losing their homes.
According to financial guru Lou Dobbs, that just ain’t so. Dobbs, who
appeared on CNN’s Anderson 360 last week, said the Bear Stearns buyout
“absolutely does not help the average home owner. And anyone who
suggests it does is misleading the American people. This helps Wall
Street. This helps Bear Stearns.”
Dobbs contends the Bush Administration is insisting that moral hazard
be applied to homeowners facing foreclosure, but not institutions that
are collapsing, as did Bear Stearns on March 14.
So our president is telling average middle income families who bought
in on the American dream, that even though the lending institutions
approved their home loans, and lending officials assured them that they
would be able to refinance their loans when the three or five-year
balloon payments rolled around, “tough nuts.”
And in the same breath, he’s telling high-risk investment companies
like Bear Stearns, “don’t worry about your risky practices. If you
gamble and lose, the U.S. taxpayers will come to your rescue and bail
you out.”
According to the Wall Street Journal, Washington more or less threw its
rule book out the window when it came to the Bear Stearns dilemma. The
Fed, which has been at the forefront of the government response, made a
number of unprecedented moves. Among other things, it agreed to
temporarily remove from circulation a big chunk of difficult-to-trade
securities and to offer direct loans to Wall Street investment banks
for the first time.
The steps were announced at the same time the Fed agreed to lend $30
billion to J.P. Morgan to complete its acquisition of Bear Stearns. The
loans will be secured solely by difficult-to-value assets inherited
from Bear Stearns. If the assets decline in value, the Fed -- and
therefore the U.S. taxpayer -- will bear the cost.
The question now looming over the transaction: Has the government set a
precedent for propping up failing financial institutions at a time when
its more traditional tools don’t appear to be working? A second
question pops into my head- will other major lending institutions
continue their risky financing practices- knowing full well U.S.
taxpayers will serve as a safety net?
“Party on dudes! We’ll keep rolling the dice. If we roll a seven, we’ll
become even more filthy rich than we are now. If we roll snake eyes,
President Bush will just ransom another generation to cover our fun!”
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