GOP at the helm for biggest bailouts
To the Editor:
Bill Hamilton’s recent column explaining the current financial crises is misleading, at best. He just wants to play the partisan blame game.
Well, the two largest government bailouts occurred during Republican administrations. The 1980s Savings and Loan bailout (during which a congressional ethics panel admonished Sen. John McCain for his relationship to the major swindler, Charles Keating) is dwarfed by the plan offered today.
Wall Street’s meltdown has little to do with individual borrowers or political correctness. Fault lies with the complex, under-regulated “shadow banking system” and overly loose government spending and fiscal policy. Yearly deficits of $300 billion encouraged the government to maintain low interest rates for borrowers. At the same time, commercial mortgage lenders were reselling mortgages as complex securities packages to banks like Bear Sterns and Lehman Brothers.
The combination of low interest rates and available cash contributed to bad lending, unqualified borrowing and artificially inflated values for housing and mortgage-backed securities.
Whereas commercial lenders are required by law to keep around $1 for every $11 invested, the shadow banks had a debt ratio of over 30 to 1. When housing prices began declining, Wall Street didn’t have enough cash to cover its debts. Bankruptcy or bailout?
The government’s current plan uses taxpayer money to purchase their bad assets, reselling them later. Our problem is that nobody knows what these mortgage backed securities packages are worth. If we pay too much, then we will have to sell them for a loss. If we pay too little, the banks could still go broke.
A bailout is absolutely necessary, and Obama will bring sensible regulation. Unlike the current Bush plan, taxpayers deserve potential ownership of these banks as collateral for taking on the risk of these bad assets. Don’t bail out the CEOs at taxpayer expense.
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