An Ugly Denoument

Today the federal government pretty much committed to swallow many hundred billions of dollars of sub-prime debt held by financial institutions. The markets rebounded, with people like me seeing many thousands of dollars of paper losses erased in the comeback...not that there aren't quite a few more losses unrecouped at this point. Should we be happy? Hardly.

This entire fiasco resulted from two primary failures of government. First, the financial regulators somehow forgot that it's bad to allow customers with poor credit to buy overpriced homes with no down payment and commit them to mortgage interest rates likely to skyrocket them into foreclosure and bankruptcy. Second, a certain Mr. Cox, a republican congressman promoted to head the SEC by president Bush, killed a regulation that outlawed naked "short sales", thereby allowing the most unprincipled people to drive beleagured stocks deep into the tank without even owning any of them - and make huge (maybe even billions) of profits by so doing.

Now, the United States of America (also known as the "taxpayers" - you and me) will own the junk mortgages and take much of the losses associated with them. The financial institutions that previously owned them will be bruised but not broken. The real estate agents, mortgage brokers, and financial intermediaries who packaged the mortgages will keep the immense profits they made during the sub-prime mortgage boom. You and me, the average American citizen who pays their taxes and doesn't take stupid risks, will pay the bill. In other words, we're being punished for being responsible, and the greedy bastards are being rewarded. The logic is that if we don't take on this debt, the world's financial stability will be destroyed. Isn't it nice to be the savior?

As I said in a previous blog, it is the responsibility of government to safeguard the country from major disasters. This particular disaster happened on Bush's watch, and many of his major contributors have emerged very rich as a result. But we, and our children, have gotten screwed. In my view, quite a few people in the Bush administration belong in the doghouse or worse. And their backers, those who profited nicely from this debacle, should pay some big taxes on their future income. And the republican party should be put in the closet in November. And, unfortunately, we normal people are going to end up holding the bag. Sorry to give you the bad news if you hadn't heard!