Senator Shelby of Alabama and other economically literate political leaders are walking against a gale-force wind in opposing the government-financed rescue of every failing business concern, because it looks like almost every major entity in the United States is floundering in a flood of bad debt and falling revenues. You have to wonder just how many holes the treasury can plug before it flounders, too.
This weekend, treasury officials are scrambling to concoct a plan to rescue Citicorp, whose collapse financial pundits have been anticipating for months, in which the government, i.e. the taxpayers, will assume approximately $100 Billion-200 Billion in losses on the books, according to sources. The government will be guaranteeing about $300 Billion of mortgages at the troubled institution.
Meanwhile, Team Obama is contemplating a $700 Billion stimulus package to be implemented over the next two years. This will be in addition to the approximately $2.5 Trillion in government interventions to support the crumbling financial system and the additional $2 Trillion in loans given to various banks over the past two years.
At the same time that we are placing ourselves at risk of a treasury default with a complete economic collapse, Argentina style, by bailing out the messes created over the past ten years, our massive structure of government-sponsored home ownership programs is enabling more of the same. The FHA, which was created expressly to help otherwise unqualified buyers afford homes, is in the process of making hundreds of billions of dollars more in shaky mortgages to unqualified buyers, that many financial observers predict will create the need for yet another massive rescue package a few more years down the road.
Right now, it is fashionable to blame something some folks refer to as the "free market" for the cascading financial debacle, yet, were it not for FHA, GNMA, the GSEs, local home buyer programs, and the multitudes of other government props to home buyers, lenders, and builders, as well as the implicit government guarantee of rescue for failing financial concerns, most of these bad loans would never have been made to begin with, and the structured debt based on them with its uncharted and apparently unlimited risk, would not have been created.
Let's put the blame for this debacle where it belongs- on government intervention in economic affairs.