Washington’s enormous, ever-expanding financial bailout effort might indeed prove to be a necessary parachute for the nation’s frightening economic free-fall. But the bailout nevertheless poses a sobering financial and moral hazard.
The financial peril comes in greatly bloating already record federal budget deficits, putting our benevolent Uncle Sam and America’s taxpayers in an even deeper hole for the long term.
The moral hazard comes in the message that the plethora of bailout aid sends: Many of those who engaged in acts of financial irresponsibility and greed can expect help from Washington, either directly or indirectly. That, of course, entails sacrifices by millions of responsible taxpayers who lived within their means and kept their noses clean during the nation’s Avalanche of Avarice.
None of America’s current economic alternatives looks particularly good.
This is a mess
We’re in a gargantuan mess of our own making, one aggravated by astonishingly irresponsible lending practices in the housing industry, excessive risk-taking by Wall Street fat cats and big banks, asleep-at-the-wheel government regulators and naive leaders in Washington who assumed that financial institutions given free rein would act properly and not be consumed by greed.
This sounds cruel, but America deserves and needs to undergo some suffering as a result of the greed, excess and startling departure from common sense that we have shown in recent years.
If we don’t suffer somewhat, we’re likely to forget and repeat the many mistakes we have made.
The long list of guilty parties ranges from mortgage brokers making home loans without verifying persons’ incomes to the blissfully ignorant Bush administration assuring us that a financially deadly concoction of large tax cuts, sharply increased federal spending and a costly war in Iraq wouldn’t lead to excessive red-ink results in Washington.
Now we’re in such a quandary that Treasury Secretary Henry Paulson announced an $800 billion bailout program designed to help free the credit and housing markets from their morass. That’s in addition to the original $700 billion bailout program adopted by Congress in October and the $168 billion economic stimulus package, including tax rebates, implemented earlier this year.
Waiting in the wings are President-elect Barack Obama and the Democrats, who plan to offer a stimulus plan that could cost $700 billion over two years.
Here’s just how out-of-kilter things have gotten in Washington:
By the numbers
For the fiscal year that ended Sept. 30, the federal budget deficit hit a record $455 billion, with the total national debt now exceeding $10.6 trillion. But the $455 billion deficit is peanuts compared with the red-ink forecasts for the 2009 fiscal year, which began Oct. 1. Robert Bixby, executive director of the Concord Coalition budget watchdog group, is projecting that the 2009 deficit could total anywhere from $1.2 trillion to $2 trillion.
Even if all the bailout and economic stimulus measures prove relatively successful, the nation’s economic plight — probably the worst since the severe 1981-82 recession — could worsen before it gets better, as Obama has warned.
The nation has suffered job losses for 10 straight months, with a net reduction of 1.2 million jobs through October. The rising unemployment rate stood at 6.5 percent for October but could top 8 percent next year, some economists say.
As I said, this mess is largely of our own making.
The Washington bailout measures could help put us on a slow path to recovery.
But we’re going to have to pay for them somewhere down the road.
X Jack Z. Smith is an editorial writer for the Fort Worth Star-Telegram. Distributed by McClatchy-Tribune.