$1 Million/Day for 2,295 Years: Senate Bailout Plan…

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.

Auto Bailout Cost to Canadian Taxpayers…

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)…

An Open Letter to Obama – Bailout Request #459…

Dear President-Elect Obama and your fellow Democratic lawmakers,

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.

Sincerely,

One of Three

List of House Members Who Voted for Bailout…

Here’s the complete list of the members of Congress who voted in favor of the bailout bill:

Roll Call for Bailout Bill Vote

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	Nays	PRES	NV
Democratic	172	63
Republican	91	108
Independent
TOTALS	263	171

—- YEAS    263 —

Abercrombie Ackerman Alexander Allen Andrews Arcuri Baca Bachus Baird Baldwin Barrett (SC) Bean Berkley Berman Berry Biggert Bishop (GA) Bishop (NY) Blunt Boehner Bonner Bono Mack Boozman Boren Boswell Boucher Boustany Boyd (FL) Brady (PA) Brady (TX) Braley (IA) Brown (SC) Brown, Corrine Buchanan Calvert Camp (MI) Campbell (CA) Cannon Cantor Capps Capuano Cardoza Carnahan Carson Castle Clarke Cleaver Clyburn Coble Cohen Cole (OK) Conaway Cooper Costa Cramer Crenshaw Crowley Cubin Cuellar Cummings Davis (AL) Davis (CA) Davis (IL) Davis, Tom DeGette DeLauro Dent Dicks Dingell Donnelly Doyle Dreier Edwards (MD) Edwards (TX) Ehlers Ellison Ellsworth Emanuel Emerson Engel Eshoo Etheridge Everett Fallin Farr Fattah Ferguson Fossella

Foster Frank (MA) Frelinghuysen Gerlach Giffords Gilchrest Gonzalez Gordon Granger Green, Al Gutierrez Hall (NY) Hare Harman Hastings (FL) Herger Higgins Hinojosa Hirono Hobson Hoekstra Holt Honda Hooley Hoyer Inglis (SC) Israel Jackson (IL) Jackson-Lee (TX) Johnson, E. B. Kanjorski Kennedy Kildee Kilpatrick Kind King (NY) Kirk Klein (FL) Kline (MN) Knollenberg Kuhl (NY) LaHood Langevin Larsen (WA) Larson (CT) Lee Levin Lewis (CA) Lewis (GA) Lewis (KY) Loebsack Lofgren, Zoe Lowey Lungren, Daniel E. Mahoney (FL) Maloney (NY) Markey Marshall Matsui McCarthy (NY) McCollum (MN) McCrery McGovern McHugh McKeon McNerney McNulty Meek (FL) Meeks (NY) Melancon Miller (NC) Miller, Gary Miller, George Mitchell Mollohan Moore (KS) Moore (WI) Moran (VA) Murphy (CT) Murphy, Patrick Murtha Myrick Nadler Neal (MA) Oberstar Obey Olver Ortiz

Pallone Pascrell Pastor Pelosi Perlmutter Peterson (PA) Pickering Pomeroy Porter Price (NC) Pryce (OH) Putnam Radanovich Rahall Ramstad Rangel Regula Reyes Reynolds Richardson Rogers (AL) Rogers (KY) Ros-Lehtinen Ross Ruppersberger Rush Ryan (OH) Ryan (WI) Sarbanes Saxton Schakowsky Schiff Schmidt Schwartz Scott (GA) Sessions Sestak Shadegg Shays Shuster Simpson Sires Skelton Slaughter Smith (TX) Smith (WA) Snyder Solis Souder Space Speier Spratt Sullivan Sutton Tancredo Tanner Tauscher Terry Thompson (CA) Thornberry Tiberi Tierney Towns Tsongas Upton Van Hollen Velázquez Walden (OR) Walsh (NY) Wamp Wasserman Schultz Waters Watson Watt Waxman Weiner Welch (VT) Weldon (FL) Weller Wexler Wilson (NM) Wilson (OH) Wilson (SC) Wolf Woolsey Wu Yarmuth

—- NAYS    171 —

Aderholt Akin Altmire Bachmann Barrow Bartlett (MD) Barton (TX) Becerra Bilbray Bilirakis Bishop (UT) Blackburn Blumenauer Boyda (KS) Broun (GA) Brown-Waite, Ginny Burgess Burton (IN) Butterfield Buyer Capito Carney Carter Castor Cazayoux Chabot Chandler Childers Clay Conyers Costello Courtney Culberson Davis (KY) Davis, David Davis, Lincoln Deal (GA) DeFazio Delahunt Diaz-Balart, L. Diaz-Balart, M. Doggett Doolittle Drake Duncan English (PA) Feeney Filner Flake Forbes Fortenberry Foxx Franks (AZ) Gallegly Garrett (NJ) Gillibrand Gingrey

Gohmert Goode Goodlatte Graves Green, Gene Grijalva Hall (TX) Hastings (WA) Hayes Heller Hensarling Herseth Sandlin Hill Hinchey Hodes Holden Hulshof Hunter Inslee Issa Jefferson Johnson (GA) Johnson (IL) Johnson, Sam Jones (NC) Jordan Kagen Kaptur Keller King (IA) Kingston Kucinich Lamborn Lampson Latham LaTourette Latta Linder Lipinski LoBiondo Lucas Lynch Mack Manzullo Marchant Matheson McCarthy (CA) McCaul (TX) McCotter McDermott McHenry McIntyre McMorris Rodgers Mica Michaud Miller (FL) Miller (MI)

Moran (KS) Murphy, Tim Musgrave Napolitano Neugebauer Nunes Paul Payne Pearce Pence Peterson (MN) Petri Pitts Platts Poe Price (GA) Rehberg Reichert Renzi Rodriguez Rogers (MI) Rohrabacher Roskam Rothman Roybal-Allard Royce Salazar Sali Sánchez, Linda T. Sanchez, Loretta Scalise Scott (VA) Sensenbrenner Serrano Shea-Porter Sherman Shimkus Shuler Smith (NE) Smith (NJ) Stark Stearns Stupak Taylor Thompson (MS) Tiahrt Turner Udall (CO) Udall (NM) Visclosky Walberg Walz (MN) Westmoreland Whitfield (KY) Wittman (VA) Young (AK) Young (FL)

How McCain Blew His Golden Opportunity…

In a week of shocking developments, including a defeated bill which sought new government spending in excess of the defense budget (and, in fact, any single item of the general budget), Senator John McCain blew a golden opportunity to put his well advertised but difficult to discern “maverick” reputation on the line on behalf of the majority of american people.

While the Democratic party, and Senator Barack Obama, and President Bush and many Republicans believe artificially increasing the supply of credit by way of government intervention at the expense of more than $7,000 for every taxpayer (and with all the urgency of a stick up artist poking his gun in your ribs and demanding your wallet) is a prudent idea, the bulk of the US population believe otherwise.

They’re right.

Contrary to virtually all media reports, government interventionism led directly to the current “crisis”. Despite this, the only solution proposed revolves around additional government intervention. Media “pundits” notwithstanding, “Main Street” understands the profound hypocrisy at play here. Unfortunately, in an election year featuring one candidate deeply commited to government interventionism and another candidate desperately commited to the idea that a leader should be seen to be doing something, even if that something is the wrong thing, the majority of americans have no one representing their views, or their pocket book.

John McCain has shown a shocking lack of courage in not standing up to the special interests who support the proposed government bailout. These same special interests, who routinely espouse the merits of free enterprise (but only when free enterprise works to their advantage) and are now calling for government intervention on a scale never before seen. John McCain supports their pleas.

There was another path for Mr McCain to take. He could have, for example, told the american people that the solution was for the government to get out of the business of guaranteeing low-quality loans. He could have said that the time for government to subsidize irresponsibility, be it on a personal level or institutionally, has long since passed. He could have made the case that picking the pockets of the people on so-called Main Street to subsidize Wall Street is profoundly un-american. He could even have put forth the (shocking, these days) notion that government is not, in fact, the solution to each and every problem. Instead, he seems to have charted a course intended to appear as “leadership”, but which leaves angry, financially threatened americans with no alternatives among Presidential candidates on the critical issue of a government bailout.

This is an issue with profound implications. Not just for americans today, but also for their children and grand children. In a country which espouses the freedom of the individual above all, but which increasingly proves the concept to be lip service at best, the populace has a choice of a “change agent” or a “maverick”, both of whom lack the courage to plot anything resembling a new course.

Land of the free? Home of the brave? Not anymore…

What Really Led to the Credit Crisis?

While the US government tries to put a $1 trillion (yes, you read that right: trillion) bailout package together, and Mr. Barack Obama and others in favour of governmental economic interventionism call for greater regulation (without any specifics), there is plenty of discussion as to what got the economy to this perilous state.

The answer is very simple: risk has been divorced from financial underwriting decisions.

At the very heart of the current crisis are the so-called “sub-prime” mortgages. The banks who offered these mortgages faced no downside in the event a mortgage defaults. That not only makes for imprudent lending decisions, it rewards them.

Here’s why: a customer comes into a bank and requests a mortgage, the payments for which he or she can’t really afford. If the bank bears the loss in the event of a default, logic dictates the banker will very carefully scrutinize the customer’s finances and ability to repay the mortgage. Doing otherwise puts the bank at risk, so the mortgage application is diligently underwritten.

But that’s not the way the process actually worked.

Instead, the banker approved the mortgage application and issued the loan. The mortgage, meanwhile, was immediately sold to Fannie Mae or Freddie Mac. Fannie or Freddie guaranteed the mortgage against default, bundled it with other mortgages, and sent it to Wall St., where the bundle of (now guaranteed) mortgages was sold to investors as Asset Backed Commercial Paper.

On the surface, you have a winning combination: investors get a chance to invest in a product backed by real assets and with a guarantee against default. Banks get paid up front for the sale of the mortgage. The original customer gets to buy a house he or she never thought possible to afford. No one loses. The bank doesn’t care if the borrower ultimately defaults: it has cleverly divorced itself from the consequences of poor underwriting decisions. The investor who bought the ABCP doesn’t care much either: his or her investment is guaranteed against default by Freddie Mac and Fannie Mae who, it’s very widely believed, would never be allowed to collapse (which has since proven to be true). Even the borrower doesn’t care: the value of the house is sure to go up, building equity against which he or she can further borrow to buy that boat and big screen TV he or she has always wanted.

Except for one overlooked detail: the entire scheme is predicated upon housing prices never going down.

What might have prevented such a scheme from ever materializing? That’s easy: the linchpin of the whole dubious set up is Freddie Mac and Fannie Mae. That’s the point at which underwriting became divorced from risk. Without Freddie and Fannie guaranteeing the mortgages against default, the investors buying the ABCPs would have been confronted with the actual downside potential. That, obviously, makes them far less attactive investments, and acts as a natural braking mechanism against an oversupply of credit. With less money flowing back to the banks, the motivation to put ever more risky mortgages on the books is removed: the riskier any particular mortgage is, the less valuable it is when the bank sells it.

Suddenly, that same customer applying for a mortgage on a home he or she cannot possibly afford is confronted with a banker shaking his head and suggesting a far more modest mortgage, the payments for which the customer can actually afford to service.

How did Freddie and Fannie get into a position of causing such a mess? President Roosevelt, as part of his “New Deal” economic interventionism, created Fannie in 1938 specifically to cause an increase in liquidity for mortgages. That liquidity, exactly 70 years later, led directly to the current crisis.

And where does that leave us today? With the US government proposing a taxpayer financed $1 trillion bailout for the purpose of increasing lending liquidity. And removing, again, financial underwriting decisions from the consequences of those same decisions.

Take a moment to have a chat with your grandchildren: tell them the economic sky is going to fall yet again within the next 70 years. Tell them we’re sorry for causing it, but it seemed like a great idea at the time…