BAILOUT

The powers that be in Washington, D.C. are currently mulling over a seven hundred billion-dollar bailout proposal of the nation’s financial services sector. This action comes in the wake of record losses and failures of some of the nation’s biggest banks, insurance companies, and other financial institutions. Massive losses, precipitated by the sub-prime mortgage meltdown, have fueled much of the financial insecurity on Wall Street and Main Street. This crisis comes at a time when the federal budget debt exceeds nine trillion dollars, the nation’s balance of trade deficit is at record levels, the dollar is plummeting in value, and unemployment is skyrocketing.

The advocates of this unprecedented bailout package say that it is necessary in order to stabilize the nation’s financial markets and restore confidence on Wall Street. They warn that, if this proposal does not pass, credit will be frozen by financial institutions that are very reluctant to incur additional debt by loaning money to individuals and businesses. If the government fails to commit vast amounts of taxpayers dollars to calm this crisis, proponents of this plan argue that a deep recession or depression may result.

Those who oppose this taxpayer-subsidized bailout do so on principle. They see no reason why the government should use public funds to rescue private financial institutions. They label such a proposal as “capitalistic socialism.” If government bails out these failing financial entities now, what is to prevent it from doing so in the future, they ask? What is the incentive for private businesses to operate efficiently and profitably if they know that the government will rescue them anyway when they fail? They cite the two hundred billion-dollar bailout of the savings and loan industry in the 1980s as proof that the government is too quick to spend taxpayer funds to rescue businesses that have been mismanaged and/or operated illegally. Good money should not be thrown after bad money.

Where does the truth of the matter lie? What is in the public’s best interest? Our system of government is based on the consent of the governed. Taxation without representation was a primary reason for the American Revolution. Yet, if our representatives in Washington do not listen to, or heed the voice of, the nation’s citizens, are we truly a representative democracy? If our President and legislators are in bed with the very people who they are supposed to regulate, who is minding the store? The very Wall Street people who are now pleading poverty are the same people whose lobbyists own many of our government officials lock, stock and barrel.

When you or I manage our finances we immediately come up against one basic fact of life. This fact of life is that we only have so much money to spend. If we exceed our budget’s limits (i.e. our expenditures exceed our income), we go into debt. Debt has consequences. Yet, when the denizens of Wall Street mismanage their companies and go bankrupt, they expect the American taxpayer to bail them out. How convenient! They are willing to accept record profits, but not record losses. I understand capitalism to mean that, if you are willing to take a risk, then you should be entitled to the rewards of success AND accept the penalties of failure. This system has worked fine for most of our history, but things are now changing. Let’s take a look at the evolution of the American economic system and try to understand the dynamics behind the current meltdown.

When our nation began we were mostly farmers, shop keepers and artisans. The population was only three million people and the federal budget was small. As the nation grew, so did its economy. Industrialization transformed the economic landscape, cities grew larger, and government expanded to meet increasing needs. Manifest destiny created many financial opportunities as a restless and energetic population moved west. In 1900 America entered the world stage as one of its major players and economic powers. Following the victory of the United States and her allies over the forces of fascism after WW II our country possessed the strongest economic engine in the world. We were the envy of other nations because our standard of living was very high and personal freedom and opportunity flourished. Although government had grown much larger in order to cope with the Great Depression and World War II, post-war prosperity and wise fiscal management by the Eisenhower, Truman, and Kennedy Administrations had kept the economy strong and secure.

Then things started to go wrong. The Viet Nam War ushered in an era of ever increasing federal budget spending and deficits. President Johnson tried to fight an expensive war while also combating domestic poverty. This “guns and butter” approach profoundly shifted the orientation that had existed in previous years. During WW II President Roosevelt had engaged the citizenry in the common cause of defeating fascism by requesting that they contribute to the war effort. Rationing of rubber, gasoline, metals, and food was also accompanied by several very successful bond drives to aid in financing the war. But during the Viet Nam war there was no call by either President Johnson or President Nixon for the nation to sacrifice, and budget deficits ballooned. During the Reagan years federal budget deficits spiraled out of control even further as the President aimed to outspend the Soviets in military weaponry and win the Cold War. Although he was successful in defeating communism in Russia, the legacy of federal budget deficits accelerated during his two terms.

Today the United States has a population of over three hundred million people, yearly budget deficits average four hundred billion dollars, and our national debt totals nine trillion dollars. This burden of debt is a sad legacy to leave to our children and our children’s children. It accurately reflects our leaders’ inability to spend money responsibly. This lack of fiscal and budgetary discipline has made our country a debtor nation to such new challengers as Communist China. Collectively and individually our inability to save money is crippling our nation’s future. The average American owes $8,000 in credit card debt. People are losing their homes, possessions and hope due to unwise mortgage decisions. We import much more than we export, and the once solid dollar is deteriorating rapidly when compared to other currencies.

I am against the proposed bailout of the financial services sector because I want to reverse these trends. We, as a people and as a government, must draw a line in the sand and say, “If we don’t have the financial resources, we should not spend the money.” For the government to simply print more money or pass a law as a way to cope with debt or financial failures in the private sector is unacceptable. It merely lowers the value of the dollar, increases inflation, and postpones the day of reckoning. I advocate a conservative approach to personal and government spending policy. “Use it up, wear it out; fix it up, or do without.” We must stop binge spending now. Our addiction to the quick fix has come home to haunt us all. What used to be tomorrow’s problem is now on our doorstep.

The financial institutions that issued unwise mortgages knew that they were taking a big risk when they issued these loans. Good banking practices should have deterred them. They didn’t. Now that these firms are failing, isn’t it a good time for that industry to come back to its senses and clean up its act? For decades the banking and real estate industries were respected because they followed conservative business practices that ensured their success. They made reasonable profits based on intelligent investment decisions. Then they got greedy. The price of homes soared on a sea of rampant speculation. Executives wanted more and bigger profits. They were given lucrative incentive packages by their boards of directors as rewards for producing short-term gains that came at the expense of long-term solvency. Take the money and run was their mantra. Lawmakers, paid to look the other way by K Street lobbyists for the financial industry, did little to regulate or prevent this looming crisis. Now this cavalier and arrogant mindset has born bitter fruit. These same Wall Street pirates want to raid the Federal Treasury itself in order to cover their mistakes and misdeeds.

Corporations should be held liable for their conduct, just like individual citizens. When they violate their fiduciary responsibility there should be consequences to them. The FBI is currently investigating several financial institutions that are in difficulty. Like the savings and loan scandal several decades ago, it appears that there may be illegal activities behind some of these financial institutions’ collapse. Nothing has been proven yet, but the search for incriminating evidence by federal officials has just begun. If wrongdoing is proven, then these corporate officials should be prosecuted to the full extent of the law. Government officials who sat idly by and ignored their responsibility to defend the public interest should be summarily ejected from office and also prosecuted if they violated the law.

People are suffering terribly during this financial crisis. They are suffering the loss of their homes, their jobs, their families, their health and their sanity. The very foundations of our society and democracy are being shaken. At a time when the average American is under such stress he also feels little connection with, or trust in, his government. The Presidential election may change these facts, but it will take more than one man to alter the future of our country. We will all have to come together as a people like we did during the Second World War. Nor will this crisis disappear overnight. This financial meltdown is rooted in a false mindset that says that we can have everything that we want right now, but can hold off paying for it until the distant future. We bankrupt our future when we think like this.

Postponing gratification, saving for what we want, is something that we were supposed to have learned as children. It’s called self-control and maturity. Somehow we took a detour from this reasonable and prudent path many years ago. Now is the time to return to the path of sanity and hope. Now is the time to live within our means. If we follow such a path there is nothing that our wonderful country cannot accomplish. The future can be bright if we make it so. By saving today we invest in tomorrow. Let us all learn from the lessons that this crisis reveals. Only then will the American Dream become a reality again.

Art Apruzzese
Los Osos, CA
September 27, 2008