Posts Tagged ‘government bailout’
The US Senate is set to pass a so-called “bailout bill” that amounts to $838 billion. To give that some sort of perspective, you’d have to spend a million dollars a day for two thousand, two hundred and ninety-five years to spend an equivalent amount. Of course, that doesn’t include the interest which will accrue on that staggering debt.
How will this gigantic tab be paid? It’ll by paid by the US taxpayer: $6,2,36 per taxpayer, to be precise. That, of course, is on top of the $13,500 each taxpayer is already on the hook for via the original TARP money, the bailout of AIG, Lehman, et al. New total: $19,736 for each and every taxpayer, on average, plus interest.
There’s an additional downside: money invested in the government bonds to subsidize this massive spending is, of course, money which will not be otherwise invested in the economy for such things as actually spurring economic growth: for every dollar invested in a government bond, there’s one less dollar available for private companies looking to grow and expand.
The total amount borrowed for “bailout” spending to date? $2,651,797,108,408.
The Globe and Mail reports¹ the total cost of a so-called bailout of the “Big Three” by the Canadian government, which has committed to 20% of the US government bailout, to ultimately cost Canadians between $15 billion and $25 billion.
What’s that mean for the individual Canadian taxpayer?
According to Statistics Canada, there were 9,275,765 full-year, full-time earners as of 2005². That’s a pretty good proxy for the number of income taxpayers. So, let’s take the conservative figure of a bailout cost of $15 billion. That puts each full-year, full-time worker in Canada on the hook for $1,617.
Of course, if you personally believe in supporting the “Big Three”, there’s nothing preventing you from voluntarily using $1,617 of your income to either buy their products or their shares. Unfortunately, the government’s bailout proposal removes that choice from the taxpayer and forces the issue, whether any individual agrees with spending $1,617 of their income to support three private companies or not (and would perhaps prefer to spend $1,617 of their hard-earned money to bail themselves out instead)…
Here’s a copy of Roll Call 690 – Auto Industry Financing and Restructuring Act. This lists how every member of the House voted on the bailout legislation.
I run a rather large company. We are currently on the threshold of bankruptcy due to the “credit crisis”. This bankruptcy would cause numerous job losses, so as you can imagine, we need help.
Here’s a bit of background on our operations:
We produce a product the general public doesn’t much care for. They can find a better product from our competitors, often at a much better price.
We also pay our employees considerably more than the competition does; about 80% more, in fact.
About a third of all our sales are to our own employees, at heavily discounted prices. Since they’re paying considerably less than the general public, their decision to purchase our products distorts the competitive pressures which would normally exist and which would force us to produce products that the general public would buy.
We’ve faced substantial competition for many years now – decades, actually. But we believe in a consistent business model, to the exclusion of profitability, agile adaptibility and long-term success and viability.
We’re not exactly at the forefront of innovation, but we promise to get there. Maybe. We’ll see.
Our competitors – evil, foreign-based companies – have been moving their plants to the United States. We have countered this invasion by moving our jobs to foreign countries. There, we can overpay our workers too.
Our success is critical to the US economy. After all, just look to history and you’ll see America once had a booming horse and buggy industry. They were allowed to fail when superior competition emerged. The economy has clearly never been the same since.
We need taxpayer money, and lots of it – at the current rate we’re burning through our cash, we’ll be broke soon. We need to be able to burn through taxpayer cash too. And, frankly, if the taxpayers won’t buy our products, we think we should nonetheless take their money. I’m sure you’ll agree that’s reasonable.
As you can see from the points I’ve outlined above, there is clearly nothing wrong with our business model – the robust way in which we do business should not be measured by profitability or long-term viability; nor should the fact no lending institution or investors will lend us money to continue our business as it currently is run be taken to reflect poorly on our management decision and overall strategy. It’s just this “credit-crisis” thing that’s causing us a whole lot of grief. Without that thorn in our side, we’d no doubt be a viable, healthy company.
If you give us the money we are seeking, we’re sure it’ll all turn around – the staggering loss of market share we’ve experienced over the course of the past couple of decades is quite obviously an anomoly which will blow over in due course. Hopefully soon. Hopefully very soon.
Thank you in advance for this bailout. You’ve made the difference between all our workers being laid off and most of our workers being laid off.
One of Three
Get ready for an interesting Monday in the world of share prices.
Despite the high hopes attached to the US government’s various bailouts (so far totalling around $1,014,000,000,000, or about $7,546 per taxpayer, as we wrote in a previous article), the world’s markets continue to drop.
Asian markets are uniformly down, and signficantly – here’s a glimpse of Asia’s markets as at 5:50am eastern:
The situation is much the same in Europe. Again, courtesy Yahoo, and also as at 5:50am eastern:
The herd psychology appears to be in full swing, with a wholesale migration out of the markets.
Hold tight for a bumpy ride: the more governments throughout the world bailout failing banks/insurers/etc., the more the taxpayers (read: consumers) get burdened with debt, and the farther away a recovery becomes…
Here’s the complete list of the members of Congress who voted in favor of the bailout bill:
FINAL VOTE RESULTS FOR ROLL CALL 681
(Democrats in roman; Republicans in italic; Independents underlined)
H R 1424 YEA-AND-NAY 3-Oct-2008 1:22 PM
QUESTION: On Motion to Concur in Senate Amendments
BILL TITLE: Emergency Economic Stabilization Act of 2008
—- YEAS 263 —
Johnson, E. B.
Lungren, Daniel E.
—- NAYS 171 —
Sánchez, Linda T.
As we previously wrote, the current crisis in the financial markets could not have happened without Freddie Mac and Fannie Mae: by guaranteeing undocumented, high-risk mortgages, Freddie and Fannie made investments in the mortgages a sure things for Wall Street.
Now, the New York Times has published an excellent background article on how Freddie and Fannie got into the position whereby they were guaranteeing these mortgages, and the fingers point to the usual suspects: with Democrats pushing Freddie and Fannie to insure ever riskier loans, under the guise of “helping” low-income, minority and high-risk applicants on one hand, and Wall Street pushing Freddie and Fannie to do the same, thereby enhancing Wall Street’s profits, the US taxpayer never stood a chance.
This could never have happened in a free market. In such a market, Freddie and Fannie would have been forced to charge insurance premiums commensurate with the risks they were assuming, not on the basis of some sort of “altruistic”, government-induced charity mission. Investors in the mortgage bundles guaranteed by Freddie and Fannie would have likewise been forced to scrutinize Freddie’s and Fannie’s ability to take on such risks. As it was, it was essentially known the government would back up Freddie and Fannie. That removed any risk to investors.
The article cites Democrats such as Barney Frank of Massachusetts and Frank Reed of Rhode Island encouraging Freddie and Fannie to take on ever more risky mortgages to support their ideological goals.
The Bush White House, which has shown itself to be more Democratic than any Democratic White House since Roosevelt (as measured by government interventionism in the economy and growth of government spending), made matters worse, by changing the lending standards applied to Freddie and Fannie, thereby allowing them to take on an additional $40 billion in sub-prime loans.
The lenders, meanwhile, threatened to take their business elsewhere unless Freddie and Fannie took ever more risky mortgages off the lenders’ books.
You can find the excellent New York Times article here.