Responding to my column on the financial mess (in the 9-26 Register, click on the title of this post to see it), Los Angeles resident Jerry DeCapua (a former schoolmate from Hamden who is a very good writer, editor and voice actor) e-mailed us this week. And let me just say there's something wrong with this country when Rush Limbaugh has a national radio show and DeCapua doesn't. Here's what he said:
"The whole bailout thing turns my stomach. (It's) the last gasp by the robber barons running this place to squeeze the last dime out of the middle class before the new sheriff gets here. In your last column, you wrote you had a hard time following what was going on regarding the imminent collapse of our economy. I'm no expert but, if I don't write this down, I'll go batsh*t.
My quick and ill-informed assessment is we need a bailout but this one wasn't it.
We need a bailout because the collapse of financial institutions and resulting foreclosures impact everyone regardless of their solvency. In other words, your dumbass lie-on-his-application neighbor's foreclosure and his dumbass helped-him-lie lender's collapse affects you, the non-dumbass living within his means (barely).
If enough of your neighbors lose their houses, your property value goes down. The resulting tax revenue loss forces your fine town to either raise the mill rate on your house or reduce the services offered to you. So your house is worth less, your taxes are higher, and the private contractor garbage bill goes up too. Suddenly, the girls softball program at the high school disappears, as well as the marching band. Also, the second mortgage you took out for your kids education gets called back or curtailed since your debt-to-earnings ratio doesn't look so good anymore to the more cautious descendants of the original dumbasses, not to mention the equity it was based upon going bye-bye.
OK, so we need a bailout but why not the last one? Because it doesn't have enough pain associated with it. First of all, the $700 billion was just a figure thrown out there because everyone wanted a figure. There is no scientific basis for the amount. Truth be told, it's probably more like a trillion. Unfortunately, the plan allows the people involved with this whole mess to carry on with no ruffled feathers and no interruptions to their fabulous lifestyles. Both the repubs and the dems talk about limiting golden parachutes. Limiting? Limiting??? How about this? You, the Big Dumbass In Charge, either leave quietly or go to prison. Here's why:
Of the 146 investment banks regulated by the SEC, only six filed up-to-date risk reports. Bear Stearns was one of the six, but filed only after it sold on the verge of collapse to J.P. Morgan. Lax regulation and enforcement allowed these institutions to inflate their ratings by avoiding accurate reporting of their risk levels. So your lender not only skips a federal regulation by omitting the reports, it also commits fraud in an effort to separate investors from their money. That is a major felony, mi amico.
Also, if the American people are expected to make this mess right, we should get a controlling interest in these institutions. Asking America to hope for some interest on their investment is like asking the Titanic passengers to wait until the crew patches the hole. Let's say I own a failing company and ask you for a loan to prop myself up. Let's also say your brother-in-law works for me so you feel obligated to do something. Do you lend me the money hoping I pay you back with interest? Or would you do your homework, insist on a controlling share, and direct the company yourself, thus avoiding a repeat of circumstances creating the mess in the first place? In doing so, you assure the health of the company and your neices and nephews continue eating on a regular basis. As a taxpayer, I want a piece of the action and a vote for the new board members.
Bailing out private institutions without pain and suffering by the people running them sends the wrong message. Such institutions will continue slimy practices knowing Uncle Sam will hand them a crutch when necessary. As we all know, doing the same thing over and over again but expecting a different result is the definition of insanity. We don't need any more regulation. Let's enforce the ones we have and stiffen the penalties for transgressors. These institutions need to know there is a terrible risk involved with a terrible risk.