I never wanted to own stock in a bank, insurance company, or automaker. But now I do. If you are a U.S. citizen, you do too.
Collectively, we now own America's largest insurance company (AIG), the largest mortgage companies (Fannie Mae and Freddie Mac), the largest domestic automobile maker (GM), and major stock positions in two of the largest banks (CITI and Bank of America), among many other investments.
I also never wanted to be a co-signer on a loan made to organizations whose top executives are reckless speculators and give themselves salaries and bonuses so disproportionate to their contributions that the act itself is nothing less than legalized theft. But thanks to our federal government, we are now also co-signers for an estimated $17 trillion of direct loans, indirect loans, guarantees, general backing, subsidization, and help to government subsidized entities. As Nomi Prins and Christopher Hayes explain in a recent article ("Meet the Hazzards," The Nation, September 23, 2009), regardless of the name or form of these transactions, it all depends on guarantees of payment by us.
In addition, the U.S. Treasury is giving indirect help in the form of vast tax breaks to these failed institutions. One given in late 2008 allows those corporations that purchase a failing bank to use the losses to offset their tax on profits for up to 20 years. On December 16, the New York Times reported that the Treasury has also issued a special ruling that allows these bailout companies that are repaying their loans and buying back their stock to use their massive losses to offset taxes on profits that they make over the next two decades. For all other corporations, this tax break does not exist when there is a change of ownership, which happened when the government acquired large blocks of the banks', GM and AIG stock.
On Christmas Day 2009, the New York Times also reported that the Obama Administration would release more than $280 billion of the $400 billion of aid promised to Fannie Mae and Freddie Mac, the failed mortgage giants. Since the banks are withholding mortgage loans, the federal government is trying to rescue the housing industry with this money.
A bailout of $17 trillion is an enormous commitment. For those who have trouble grasping just how much, as I do, a useful metric is that the Gross National Product of the United States for 2009 will be about $14.3 trillion. Thus, the amount of public aid required to bailout our financial industry is roughly equivalent to the value of the entire production of every person and every company in the U.S. for all of 2009 and the first two months of 2010.
Put another way, you and I are each on the line for about $56,000 of guarantees to pay for this bailout. And when it comes time to collect whatever we will owe, the IRS will not be understanding.
But the money is just part of the cost. A double-digit unemployment rate and the joblessness of 27 million Americans is another. The loss of production and gross national product because of idle workers will also be in the trillions of dollars. The loss of homes, careers, businesses, educational opportunities, and dreams will further extend the cost. For many people, their lives will be destroyed and for most it will far less than it would have been if only our government had done its job and looked out for our interests, instead of rolling over for Wall Street.
As we have come to understand, Wall Street stupidity, greed and ideology, coupled with Washington corruption, are the roots of this crisis. So too is massive financial fraud. It is a reasonable demand of taxpayers, and now we involuntary stockholders and guarantors, that our government and elected representatives take steps to prevent such a massive economic failure from ever occurring again.
Yet, more than a year and a half into this debacle, financial re-regulation legislation is months away from a final vote in the Congress, if ever. What we are getting is the political equivalent of a dinner guest shifting tasteless broccoli around on their plate. The legislative drafts being considered, moreover, are largely political placebos that leave in place the institutions and regulations that failed, and worse the same executives and board members. Each day that passes, we are further away from even elementary financial reforms, such as prohibiting banker speculation with depositors' savings by putting back into place a modern Glass-Stegall Act that separates commercial and investment banking.
And for all the talk about holding accountable those who created this mess, the Obama Administration did not get around to creating a Financial Fraud Enforcement Task Force until mid-November 2009. It, moreover, is understaffed. During the Savings and Loan crisis of the late 1980s and early 1990s - a much smaller disaster - the Federal Bureau of Investigation was given 1,000 agents. The Obama Administration and Congress, however, are providing only 300 agents to deal with this collapse.
Of course, Wall Street is not displeased with the political paralysis in Washington. Indeed, it is buying inaction through massive political contributions, which are reported to the Federal Election Commission. Think of it as "publicly-reported, legalized graft."
But we taxpayers (shareholders) are not helpless. Far from it. In the 2010 and 2012 elections, we will be able to hold the slacker elected officials accountable at the polls. As the 2006, 2008 and off-year 2009 elections illustrated, massive political contributions and vast personal wealth are meaningless when confronted by a public that believes its wishes and interests are being ignored.
Trust me, this prospect is much on the mind of many a Senator and Member of Congress this holiday, even those of Presidential advisers.
And, Dear Fellow Stockholders, if this financial crisis, and the way our government is handling it, makes you as angry as it does me, many of today's elected federal officeholders should be preparing themselves for a return to private life.
While many of those tossed from office will go to work for those that they coddled so richly, the prospect of removal from power can be a strong deterrent for those who remain, hopefully ensuring that they do not make us stockholders in more failed financial enterprises through more government bailouts.