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We’re on a slippery slope

Full Speed to Port

Posted: September 23, 2008 8:10 p.m.
Updated: November 25, 2008 5:00 a.m.

Socialism is best described as an economic system in which the basic means of production and finance are primarily owned and controlled collectively, usually by government under some systems.

With the $700 billion the president is asking for, plus the loan to AIG and the bailout of Fannie Mae and Freddie Mac, have we become a socialist country? Should we throw Milton Friedman’s laissez faire economic theories under the bus?

Odd that Friedman’s repugnance of regulation has turned out to be a loaded gun and we’ve just shot ourselves in the foot, maybe both feet. Is it better to regulate business or wait until it goes down hill and let the Feds fix it? This path is a blow to privatization and an invitation to corruption.

In other words, the federal government becomes the lender or purchaser or guarantor of last resort. With the government lending $80 billion to AIG, we are insuring the insurer. The part that I find troublesome is what if $80 billion is not enough? What then? Call 1-800-China?

Recent news announced that the federal government is holding an auction to replenish the dwindling resources of the treasury. That means that China and other nations, mostly Asian, get to share in this financial debacle. They get to own more of the United States — our debt.

If no one wanted any of that money, the higher interest rate we’d have to pay to attract lenders would mean more money out of every American’s pocket.

The administration’s borrowing and cutting taxes to create a growing economy instead of paying as we go has caught up with us.  I’ve heard no one mention of the surplus we were left with at the end of the Clinton administration. Now Bush is asking Congress to raise the debt limit so we can save the economy. I said to my wife, Suzie, we must be sinning big time if you believe we get punished for our inequities.

We are told that with the super fund’s $700 billion dollar bailout money the government will allow the Treasury to buy mortgage bank securities with the hope that they can be sold at a higher price when things pick up. What they are not emphasizing is that the mortgages the Treasury is buying are mostly the bad ones, the toxic ones that people quit paying on.

Also what they are not saying is that most of the same CEOs who ran things into the ground may still be in charge of these institutions. Are we talking opportunities for hanky panky here or what? America’s economy is on a slippery slope. Anybody who thinks this is over with needs to look at what’s happened so far.

Companies that list themselves as needing capital get bailed out by the government or go into bankruptcy. Number one was IndyMac, the third largest bank in history, to be bailed out by the FDIC. Bear Stearns came next, once the No. 5 investment bank in the United States. It was sold for a song to JP Morgan Chase with a federal guarantee.

Fannie Mae and Freddie Mac were next. The government put together a plan to rescue them and announced the likelihood of the two entities needing the money was very small. Apparently someone guessed wrong because it was days before the plan had to be put in place. The two companies are now being managed by the U.S. government. The outstanding good thing that this will do is put some lobbyists theoretically out of work and make Congress have to work harder for the re-election money that Fannie Mae and Freddie Mac provided.

So now the U.S. government is in the banking business. IndyMac is being supervised by the federal government. Do you think they will find a buyer? Normally one is found the very weekend of a takeover. FDIC doesn’t want to run banks forever. The government controls Fanny Mae and Freddy Mac. The treasury and federal reserve decided to stand by as Lehman Bros. went bankrupt. We control AIG, the biggest insurance company in the world. This could have been modified or eliminated. Capitalism without reasonable government oversight is doomed to failure.

Of all the entities involved in this mess, banks are the most regulated, and yet IndyMac went down. Does this tell you anything about the administration’s desire to pursue regulation? Americans don’t cotton to socialism, and yet we’re responding in indescribably hybrid ways to the problems of capitalism, and those responses resemble socialism.

Regulation without an administration’s support and backing will not stamp out greed. Laws that are enforced will put people behind bars who violate them and are a start on a solution to our fiscal problems. The alternative is more socialism.

Phil Rizzo is a Santa Clarita resident. His column reflects his own views, not necessarily those of The Signal.


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