Okay. I saw the President as he gave his sales pitch for the $700B bailout (aka HR 3221 being debated as I write). The gist of his speech was thus:
“We need this bill. We are spending $700B that will buy mortgage packages, taking the devalued debt load off of banking institutions. That will free up banking institutions so that they can loan money to businesses and individuals so that the economy doesn’t bog down.”
To pass this bill we first have to increase our federal debt limit to $10.6 Trillion dollars. So now we are borrowing the $700B (from who? China? Japan? Saudi Arabia?) so that we can save overextended financial entities (who have been under-regulated) so that they, in turn, can extend more credit to more people to finance their homes, and businesses…. and give banks the ability to loan money to each other for a day or two. This should lead to that golden nirvana: keeping people employed.
I’m sorry, but I still don’t get it. This is a solution? I understand the need to do something now. And this bill does have benefits. There is language in the bill to help our vets, our communities, and our primary homeowners (not speculators). More importantly, it establishes an independent regulator – The Federal Housing Finance Agency – to oversee Freddie Mac, Fannie Mae and the Federal Home Loan Banks. This is all good, yet that I have this uneasy feeling.
Now, my parents, married in 1931, had a different view on money. My Dad gave me a lesson that I still struggle with today. “Pay cash for everything.”
I was taken aback when he told me this and responded as only a self-confident teen could, “Oh, right… you didn’t pay cash for the car.”
“Well… yeah. I did.” Okay… I stood corrected.
Now let me attach a little nugget from Economics 101: “You can never borrow yourself out of debt.” Never.
I’m in a quandary. If HR 3221 is supposed to be the solution, I’m not seeing how it ultimately solves the problem. That problem? Somebody, sometime has to pay for all this borrowing. At some point someone has to work just to pay off our personal and institutional debt – first. We managed to do it during the Clinton administration; I can only imagine what it will take to do it in the next.
As this bill is being finalized in preparation for the President’s signature, I have only one question, “Just how long is $700B in borrowed money supposed to last?
After all, it is only a loan.