- Even if Con-gress passes the $700 billion bailing
out of the huckster banksters, it will be like putting a band-aid on a
leak of Hoover Dam. What lies in the immediate future and coming home to
roost, is something 100 times bigger and meaner. And no-one, and I mean
no-one wants to talk about this in Washington, D.C.. This criminal financial
nightmare is just going to get worse with every passing week. Social security
and Medicare has everything beat. It will be explained to you below. -
JPW
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- The United States faces not only a financial crisis but
a fiscal crisis. The financial crisis washing over the broader economy
is unfolding now, of course; the fiscal one is on the horizon.
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- The financial crisis stems from extraordinarily bad decisions
from Main Street to Wall Street involving residential housing. Every
homeowner who borrowed excessively, speculated through flipping homes or
lied on a mortgage application shares the blame, as do the lenders -- on
up to the Wall Street suits who played fast and loose in defiance of simple
prudence.
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- The federal government also deserves blame. Years ago, it
created a program that fostered a culture of imprudent mortgage lending
to individuals who posed a high likelihood of foreclosure (minorities).
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- It created and nurtured financial behemoths in Fannie
Mae and Freddie Mac, which have now become wards of the state. It
maintained a regulatory system fit for an age of typewriters and slide
rules. And regulators worldwide were caught flat-footed as the threats
built up.
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- The Paulson plan was certainly no cure-all; it was intended
to keep capital markets functioning so they can resolve their own problems.The
plan's core was to make up to $700 billion of taxpayer funds available
to purchase low-quality assets. We need additional steps, such as
expanding the reach of deposit insurance at commercial banks. The
problem began with housing, but it has now spread far beyond.Another homeowner
bailout bill just won't make much difference.
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- We face two choices. We can vent on the Paulson plan,
as House members who voted against it earlier today, have done. Or
months from now we can vent at Congress for not passing the plan, as
the ranks of the unemployed swell by a couple million or more. The issue
is whether to act to reduce the depth and duration of the economic slowdown, not
whether to prevent it.
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- The Paulson plan's sticker price of $700 billion is shocking,
but in context, the consequences for the federal debt and deficit are relatively
minor. The real fiscal crisis, which is just around the corner,
is more than 100 times greater. That crisis involves the promises
made through Medicare and Social Security. Compared with the excess
costs in these central federal entitlement programs, the Paulson plan's
size is just a warm-up.
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- J.D. Foster is the Norman B. Ture Senior Fellow in the
Economics of Fiscal Policy at The Heritage Foundation (heritage.org).
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