jdlech (48.72)

Bailouts and our National Priorities.

September 06, 2008 – Comments (4) | RELATED TICKERS: FNM , FRE , BSC

Back in the '70s there was the Lockheed Aircraft bailout.  We, the taxpayers, guaranteed $250 million USD in loans so they could remain in business.  The actual cost to us was nothing since they did not default on their loans.  Then came the first Savings and Loans in 1984 which actually did cost taxpayers $124 billion USD.  Then came Bear Stearns, where the taxpayer is backing up some $29 billion dollars in loans in exchange for sub prime loans - the value of which is highly suspect.  Now we have Fannie and Freddie.  The two institutions that, according to Forbes, is about to become government agencies so that the taxpayer can back up a combined total of $190 billion USD in subprime mortgage exposure.   Assuming the trend continues, one in five sub prime loans either goes into default or is at least 60 days in arrears.  That leaves the taxpayer holding a $38 billion USD bag.

Meanwhile, government spending for defence has hit an all time high.  The 2008 United States budget for defence is $481.4 billion USD.  That does not include any associated black box spending or the $93.4 billion USD in emergency supplemental funding to cover equipment replacement for the wars in Iraq and Afganistan.  According to the chart from globalissues.org, that level of spending is about the same as the entire rest of the world combined.
See graph
Come on America, who are you so afraid of that you need that level of defence spending?  Do you plan on being attacked by the whole rest of the planet?

Meanwhile, our bridges are collapsing, our levees are failing, our water, sewer and roads are crumbling, our schools are failing, our prisons are bursting at the seams, millions of children are going without basics like food and shelter, and our health care system is one of the least efficient in the industrialized world.

We just can't keep going on like this.  We need to change our priorities.  We need to get back to investing in our homeland first.

What we need to do is to provide Fannie and Freddie loans that they eventually have to pay back.  Even if they were interest free loans, at least the taxpayer would get his money back.  Back in the 1980's there was enough public outcry against welfare queens that we changed the system.  Today, the old image of the fat welfare queen with 5 kids sitting down watching soap operas and eating bon bons all day is gone.  In most states, if you don't find a job in 6 months, you're out of the system, period.  Now we have corporate welfare.  Take all the risk you want; if you're big enough or well enough connected, the taxpayer will bail you out.

Forget this; we need to enforce some discipline on ourselves, on our Government, and on our corporations.  No free handouts to anyone, anymore.  We'll loan corporations money, but we should expect them to pay us back no matter how long it takes.   Freddie and Fannie can survive with loans; not handouts.  Their shareholders should have known the risks their companies were taking through their own DD.  Otherwise, they should not have been investing in Freddie and Fannie in the first place.

Our government needs a few different priorities as well.  We need to reduce defence spending by about 25% and end the wars in Iraq and Afganistan.  Put about half of that towards rebuilding our nations infrastructure and funding the No Child Left Behind program (currently an unfunded mandate), and it would take just a small amount to help feed and house Americas hungry children.  Half of the rest needs to go towards tax cuts and the other half towards balancing the federal budget.

Let's see here, 25% of $481.4 billion USD is  $120.35 billion USD, plus $93.4 Billion USD comes out to be $213.75 billion USD.  Half of that, or $106.875 Billion USD will go towards rebuilding America.  I imagine that much domestic spending on construction might have some impact upon the economy as well as rebuilding the infrastructure this country relies upon for further economic growth.   I consider funding the NCLB program a long term investment in American economic growth.  That leaves another 106.875 Billion USD; a small part of which can go towards feeding and housing homeless and impoverished children.  Let's say we use a quarter of it for such purposes.  Half the rest can go towards reducing the federal budget deficit and the other half to cutting taxes.  Let's see, that's $26 billion USD for impoverished American children, and $40,437,500,000 to reduce the deficit and for tax breaks.  With that amount of money, we can increase the standard deduction for every American taxpayer by $412.

And that still leaves us with a military budget that represents 36% of all the military spending on the planet.  Still far more than enough to defend ourselves from any imaginable threat.  The whole world is not going to attack us all at once, folks.  Get over your paranoia.

I would like to see our troops come home and reassigned to Americas borders to stop the influx of illegal immigration.  As it stands, I think the greatest threat to National Security is not all the illegal immigrants themselves, but the means by which so many are getting into our country.  If a half million people can make it past our border guards every year, then it's obviously too easy for terrorists to smuggle drugs, weapons, or even Weapons of Mass Destruction into our country.  We need to stop that before we are victimized again.  This would give our military something much better to do than chasing shadows all around the world.  I would leave that up to our intelligence community.

One final thing I mentioned was health care.  It's not all that well known that only about 5% of Americans have no insurance.  That's right, only about 5% of us cannot afford to get sick.  The problem is not nearly as insurmountable as the politicans would have you believe.  But I think I'll save my solution for that problem for another blog.

 Have a good weekend, all.