The “fall off the cliff” began with the subprime mortgage problem manifest to the public a year ago. This situation was created exclusively by Congress as a populist political mandate that home ownership promotes societal fairness. Never mind that it is not in the Constitutional power of Congress to require fairness. It is, however, legal for Congress to accept campaign contributions from public (Fannie Mae and Freddie Mac) and private investment banks in exchange for regulatory adjustments that allowed an accumulating pile of mortgage-backed securities into which were mixed the defaulting “toxic” mortgages offered and sold worldwide without accurate declaration of source or location of associated risk. Further, Congress changed rules to allow this financial industry sleight-of-hand, doing so with foreknowledge but without any later admissions of fault.
In October 2008 after many banks experienced big problems, Congress passed a bill to inject $700 billion into banks needing aid to buy financial assets that had lost value without defining conditions for TARP-funds acceptance by the private-sector recipients. Then, after the fact and prohibited under the Constitution as ex post facto law, conditions were imposed by Congress. The bailouts immediately morphed into dictates to bank management on employee pay contracts (however ill advised as originally made).
Preferred stock and warrants in these banks were purchased, which imposed requirements upon operations (under the guise of expanding liquidity), guaranteeing interbank loans and mortgages and purchasing commercial paper. This type of action dilutes the value of existing shares and sets a precedent for similar dilutions in other sectors. These actions are also totally illegal. Congress has no authority to do these things, but it did them. The private sector was browbeaten into acceptance, without you or me lifting a finger.
In addition, the media erroneously explained events (purposefully in my view) in efforts to “sell the concepts” for federal intervention. As example, when the auto industry returned for a second feeding at the trough, everyone talked about Obama “firing” the CEO of General Motors. If I had been in that position of being “fired,” which legally cannot occur because only the Board of Directors can do that deed, I would have told him to mind his own business. The President of the United States cannot fire anybody from a private-sector job.
So, lending remains paralyzed in the financial sector and constrains economic activity in non-financial businesses. The Congressional bank bailout has postponed elimination of insolvent banks and industrial companies through the established methods of bankruptcy, restructuring and resale without proper asset re-evaluation to allow recovery. Thanks, Congress, for causing a worldwide problem, inhibiting recovery, lying about the role of all Members in the events and delaying a proper asset valuation so that the private sector can get along with its affairs.
All of this presents a horrendous problem. For every dollar Americans generated last year in Gross Domestic Product (GDP), federal bailouts consumed 90.14% in outlays, loans and commitments. The Federal Reserve, Treasury, FDIC and HUD have saddled American taxpayers since last October with $12.8 trillion in new obligations. The 2008 GDP was $14.2 trillion, so that debt is 14 times the $900 billion in U.S. currency washing through the domestic economy. In addition, Obama asked Congress to approve a 23% increase in regular U.S. budget authorization for 2010.
See page 5 of your President’s introduction to his proposed federal budget and see his comments, which include:
- “While middle-class families have been playing by the rules, living up to their responsibilities as neighbors and citizens, those at commanding heights of our economy have not.” This quote is inciting class warfare.
- “Prudent investments in education, clean energy, health care and infrastructure were sacrificed for huge tax cuts for the wealthy and well-connected.” A Chicago politician talking!
- "There’s nothing wrong with making money, but there is something wrong when we allow the playing field to be tilted so far in favor of the few. It’s a legacy of irresponsibility, and it is our duty to change it.” Remember, the Constitution authorizes no such things.
PostscriptIn 1787, Scottish history professor Alexander Tyler wrote: “A democracy by nature is temporary; it cannot exist as a permanent form of government. It will continue to exist until the time that voters discover that they can vote themselves generous gifts from the public treasury.
“From that moment on, the majority votes for the candidates who promise the most benefits from the public treasury, which will eventually collapse due to the loose fiscal policy, which is always followed by a dictatorship.” IH