AIG

In light of the recent government bailouts of several high profile companies, some pundits are rushing to attempt to correct the idea that taxpayers are paying the tab. Some analysts are trying to push the idea that the billion dollars’ worth of bailouts are merely structured as loans or investments by “the government” and thus don’t cost taxpayers anything… which is fair enough except that “the government” isn’t some enigmatic entity, nor is its funding. Government dollars are largely tax dollars. They belong to you and I. Our tax dollars are footing the bill for the bailout whether or not you believe that those dollars are actually at risk (and I believe that they are).

And yes, I realize that the cash that is generated to fund these bailouts is not funded by an immediate tax increase. No one will come knocking on our doors tomorrow looking for more cash. I know that most of this type of funding comes from money in the government’s portfolio (um, guess where most of that comes from?). And I realize that doesn’t immediately add to the deficit.

But just as when you or I raid our reserves, less money in the bank means less more for both existing and unexpected expenditures. What happens when you can’t pay your bills? You either search for ways to generate more revenue (raise taxes), borrow more (adding to the deficit) or you make cuts. All of those options affect taxpayers.

Does this mean the bailout isn’t a good idea? I’m not saying that at all. But let’s call a spade a spade. It’s our money being offered up, so stop pretending that it’s not.

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You already know what I think.

McCain says:

We should never again allow the United States to be in this position. We need strong and effective regulation, a return to job-creating growth and a restoration of ethics and the social contract between businesses and America.

Obama says:

This crisis serves as a stark reminder of the failures of crony capitalism and an economic philosophy that sees any regulation at all as unwise and unnecessary. It’s a philosophy that lets Washington lobbyists shred consumer protections and distort our economy so it works for the special interests instead of working people; a philosophy that says we should give more and more to those with the most and hope that prosperity trickles down to the rest.

To read the entire statements from the candidates, visit NPR.

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Imagine this scenario: I am a voracious spender, some would say reckless. I rack up tons of debt buying Jimmy Choo shoes (a good investment, I’d say), new furnishings for my house and iTunes. When I reach my limit, I panic. My friends panic. My family panics. But all is well when I get a phone call from the feds promising to give me the money to pay off my debts if they can occasionally borrow the shoes.

Sounds a little ridiculous right?

Not so much. The Federal Reserve yesterday agreed to give ailing insurance company American International Group, Inc. an $85 billion boost to help it climb out of trouble. In exchange, the government now owns a piece (though no one is saying how much) of the company.

Must be nice.

Yeah, I get that there are some differences between my hypo and AIG… For one, I don’t think the company owns any Jimmy Choos. And I realize that I don’t hire thousands of people that rely on me to remain economically stable (just a handful) nor do large companies look to me to provide an economic benefit (except maybe Apple because we spend far too much money with them). Tens of thousands of investors don’t stand to lose money when I make bad decisions - not even tens of investors, just my husband. But you get my point.

The escalation of the housing crisis - brought on, many argue by an unrealistic and irresponsible borrowing spree to purchase real estate in high growth areas - has resulted in a series of events that are shaking down the US economy in a big way. While in a pure capitalist society, this would result in a “wait and see” pattern, we don’t live in a pure capitalist society (really, don’t ever believe that we do for second). Our government regularly steps in to avert crisis or regulate financial markets. And lately, it’s being stepping in a lot.

How much is all of this economic protection costing taxpayers? A lot. Try $800 billion a lot. Exactly where is all of that cash pouring from the feds to the private sector going? Here you go:

• As reported earlier, $200 billion has been pledged to save Freddie Mac and Fannie Mae.
• As reported above, $85 billion will be doled out to AIG.
• The Federal Housing Administration has guaranteed an additional $102 billion in mortgages for 2007.
• The Federal Reserve’s “special” lending facilities have loaned an additional $400 billion to struggling banks.
• A whopping $29 billion was used as a guarantee to insure JP Morgan Chase’s purchase of Bear Stearns.

A bit sobering, isn’t it? In an economy already operating at a deficit, the government continues to hand out tax dollars as if they are candy: Here, take some, we’ll make more.

Don’t get me wrong. I’m actually not opposed to the government stepping in to avert a bigger financial crisis. I do, however, wonder about the economics of these transactions. Did the CEOs and other board members of these struggling companies make any sacrifices? Did they take any pay cuts? Were any real efforts made to save these companies before asking for corporate welfare? I don’t know. What I do know is that in 2006, the CEO of AIG was paid $26 million in salary and bonus; in 2007, he received an additional $14 (source) - $40 million in two years that I am fairly certain he won’t offer to return to the company after apparently running it into the ground. The CEOs of Bear Stearns, Lehman and Countrywide also sit atop the leader boards in pay, earning hundreds of millions of dollars (source). In the meantime, many Americans are working to meet their own existing obligations with no assistance from the government. Maybe it’s not so much bail out that’s needed as for these companies as accountability…

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