Bailout - Welfare for the Rich

As I write this the negotiations for the bailout of American financial institutions is in full swing. There are pressures on both sides of the negotiating table. The negotiators are the legislative and the executive branches of the U.S. government. This same debate is being played out on the streets and around the dinner tables (well maybe not the dinner table) of America. The debate is around who should be saved: Wall Street or Main Street?

The argument is usually couched in terms of "who is to blame" or "who is worthy of assistance." It is slightly amusing that both sides take to their corners and hunker down for the fight . . . potentially to the death.

I am on the side of little guy in this fight. But really the arena for the fight is not a square ring but a round colliseum. However that does not stop comments such as:

"I’m not opposed to a reduced interest/payment but am opposed to interest free or automatic principle write off. While I agree we are all in this mess together, I don’t agree the consumer should be given a free ride because they didn’t read the contracts “small print” or took on more debt than they could pay. "

This comment came from a supposedly industry professional who is president of a credit union in Tallahassee,. Florida. What I interpret his comments to mean is that the people are broke not the financial system. This person apparently feels that the mighty American financial system is being brought to its needs because Granny is delinquent with mortgage payments or Junior has defaulted. His remedy is no help for the individual holders of bad paper.

But his veiw point is a sort of moral hysterical blindness. it does not reflect the ongoing conversation and commentary about the basic failures of the financial system. The underlying problem of toxic financial instrument contagion has to some degree grown from the financial practice designed to address just this type of problem. Financial derivatives are pieces of paper that represent bets on finanacial performance of other financial instruments that are bundled financial consumer debt products that are then sold off in pieces. So what we have is the dumping of a group of mortgages with varying creditworthiness into a bucket, stirring them together into a slurry and ladling out the resulting mix as securities backed by the slurry.

The rationale is that even though some mortgages in the bucket may default their are enough sound mortgages to absorb that shock and continue producing revenue for the mortgage backed securities. Another feature that was supposed to immunize the market from the negative impact of securities default was that by selling the slurry in slices to many holders no one takes the full brunt or impact of a default. The smartest people in the room weren't so smart after all unless the wit was their ability to benefit from the sale of the securities and avoid the impact of owning them.

How can this guy who claims to be a financial industry professional dump on individual mortgagees as being irresponsible for buying a financial instrument, a home mortgage, without understanding the arcane financial minutiae that accompanies mortgage contract closings? Regular people are not financial professionals. If it were so easy the real estate attorney field would be much smaller. Never mind that, how about the financial professionals who admit that they did not understand how the financial derivative securities worked when they bought them and don't fully understand their impact now.Governments around the world are concerned about how there securities will affect their national economies. So what about them? Are they and their behavior or lack of knowledge just as objectionable as the consumer looking for a free ride because they didn't read the fine print?

The fundamental problem is the basis of capitalism and European culture. The problem is one of greed. Exploitation or getting over, getting something for nothing is the root of the problem. Unless we are willing to pull up this glorification and identification of exploitation as the highest good by the root we will continue to be revisited by this fundamentally spiritual problem. Without reciprocity as the watch word and the highest expression of "the good" and what it means to be human the boom/bust cycle will continue until the the end. There is a theory that the world started with a big bang and I theorize that the financial world may end with a big bust.





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