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Real Financial Meltdown
On The Way - 100 Times Greater

By J.D. Foster
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
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.
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.
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).
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.
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.
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.
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.
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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