When will the government learn?
Who’s next? General Motors? Delta Air Lines?
When will the government learn? When will they realize that the taxpayer can’t shoulder the burden that Washington is imposing with all these bailouts of big business?
First, it was Bear Stearns. The Fed and the Treasury arranged a $29 billion loan for the investment house, who had sunk a lot of money into risky mortgages.
Then came mortgage giants, Fannie Mae and Freddie Mac. They’ll each get federal backing of up to $100 billion.
They, too, got seduced by the prospect of more income from risky mortgages.
And this week, the latest federal bailout was announced. Some $85 billion will go to prop up American International Group, the nation’s largest insurer – yet another victim of risky mortgages.
What makes the AIG bailout even more disturbing is that the money isn’t a loan. No, Washington now owns 80 percent of the insurer.
Say, didn’t the Soviet Union own all the companies located there? And countries such as Mexico and Zimbabwe. Don’t they own their big businesses?
How, then, did the United States get into its current situation, which critics are calling socialism or even communism?
The answer is politics, more specifically, Democratic politics.
In the ‘70s, the Democratically controlled Congress decided it knew better how to direct mortgage money than banks and other investment firms.
They told financial firms that it had to make mortgage and development loans to “underdeveloped” areas.
Yet many of the borrowers in these areas were bad loan risks. And sure enough, investors had to eat losses from these bad loans. Then, in the early ‘80s, Democrats argued that depositors shouldn’t lose any money if a savings and loan, or bank failed.
So they reduced the risk lenders faced because they wouldn’t have to pay back depositors if the lenders lost money.
Then there’s Fannie and Freddie. According to the Associated Press, the two government-backed mortgage lenders spent more than $170 billion lobbying. It also spent millions on campaign donations, giving more than 53 percent to Democrats.
Oh, and the CEO of Fannie Mae until recently? Franklin Raines, former budget chief to President Clinton.
According to published reports, Raines took in close to $100 million in bonuses. That after moving Fannie into high-risk mortgages AND massaging the numbers to make the lender’s books look better.
By the way, Raines is now an economics adviser to presidential candidate Barack Obama.
The shenanigans at Fannie and Freddie were largely ignored by powerful Democrats Rep. Barney Frank, Mass., and Sen. Charles Schumer, N.Y.
And isn’t it interesting that Frank got a combined $11,500 this election cycle from the two lenders, even though he holds one of the safest seats in Congress.
To be sure, the Republican Bush administration played a big role in bailing out these big companies. But it did refuse to prop up Lehman Bros., which is frantically searching for a buyer.
But the question still remains. Who’s next?
More to the point, what failing business has strong Democratic political ties, that can look forward to taxpayers paying for its mistakes?
Chris Warden is an assistant professor at Troy University’s Hall School of Journalism. Prior to that, he was the editorial page editor of Investor’s Business Daily.
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