Sun editorial:

Another bailout

Congress should look at long-term economic fixes to keep taxpayers from footing the bill

Thursday, Sept. 18, 2008 | 2:07 a.m.

The Federal Reserve continued its unprecedented actions to stave off an economic collapse this week with an $85 billion loan to ailing insurance giant AIG. The central bank also pumped $70 billion into the faltering economy to try to ease the credit crisis.

Government officials said AIG is so intertwined in the economy that its collapse would have pulled down thousands of other businesses. That is becoming a common refrain.

The federal government this month took over mortgage giants Fannie Mae and Freddie Mac, and the Federal Reserve Bank of New York this year had to prop up failing investment bank Bear Stearns to prevent an economic meltdown.

For the average American, this is frustrating, if not infuriating. For years executives at Wall Street investment banks took hundreds of millions of dollars in annual salaries and bonuses as their companies feasted on the bull market. Now, the federal government is bailing them out.

We certainly understand why the federal government has stepped in to salvage the mess Wall Street made. Allowing corporate behemoths to collapse could devastate the economy and further hurt working Americans.

Unfortunately, the bailouts further the perception on Wall Street and in corporate boardrooms that they are too important to the country to fail. That thinking leads only to more of the same arrogance that landed the economy in the current situation.

A number of complex and interlaced issues have helped drag the economy down, including the irresponsible lending practices in the mortgage industry, banking deregulation and the government’s failure to regulate business properly.

To solve these problems, it will take more than populist rhetoric, such as Sen. John McCain’s call to “clean up Wall Street.”

While trying to find short-term relief efforts, Congress should unravel the causes of this crisis and find real solutions so taxpayers won’t again be on the hook for corporate America’s failures.

Discussion: 8 comments so far…

By neiman1

9/18/08 at 5:55 a.m.

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Harry Reid yesterday at a press conference says Congress will adjourn on time in 2 weeks because "no one knows what to do". This might be the first time harry has told the truth. After personally making the Freddie Mac and Fannie Mae problems with mandates for loans to low income people he now runs for cover.

This is after he says no to opening drilling in America. We need American resources for American jobs now.
By jfnance32

9/18/08 at 7:18 a.m.

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Obama is showing a lot of leadership. His thoughts on the AIG bailout were ......................................................................................................................................nothing.
By thebs

9/18/08 at 8:26 a.m.

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Nance, Obama made it clear he was disappointed AIG needed a bailout but understood it was necessary.

McCain, on Tuesday, said he opposed a bailout of AIG.

McCain, on Wednesday, said he knew the bailout was necessary.

McCain, on Monday, said the fundamentals of our economy are strong.

McCain, on Monday, said the economy is in crisis.

The doubletalk coming from the McCain campaign is at a fevered pitch.

Why else would they whisk Carly Fiorina away to an undisclosed location? LOL!
By KDR81

9/18/08 at 8:54 a.m.

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Let them collapse, get the government out of that kind of regulation. Stop the government from picking winners and losers.
By KDR81

9/18/08 at 8:57 a.m.

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Oh and Sun, it was government regulation that caused this.

In 1977 the US government required lending institutions to make loans to people with bad credit.

Following the 2001-03 bust the Fed lowered rates and pumped money into the economy.

An implied garuntee to Freddie and Fannie allowed them to have little cash on hand in comparison to their investments. IE they made big risks they couldnt pay back.

In all the government encouraged the morgage industry to take big risks because the money was cheap and failure wasn't possible.

Turns out they were right. The gov bails them out. Newspapers blame market deregulation, and the billionaires and politicians get away without a scratch.
By JustTheFactsJack

9/18/08 at 11:55 a.m.

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It worries me that China quite possible will controll the entire financial system in the US and the UK.

This is a portion of an article from the BBC News Business website. A link to the entire article is at the bottom.

From the article:

The credit crunch is creating a new world order in banking and finance.

It's striking terror into the hearts of hedge funds, who can see their backers head for the hills at the mere sniff of an investment boo-boo by hedge-fund managers.

Conservative institutions, and those with simpler business models and a history of careful management of their funding sources, are the new superpowers.

It's a world in which Bank of America, JP Morgan, HSBC, Santander and even Lloyds TSB have the whip hand.

It's a world in which the Chinese state, if it co-ordinated the investments of its cash-rich institutions, could end up owning more-or-less the entire financial system of the US and the UK.

And it's a world in which even Morgan and Goldman may well have to surrender their proud independence.

http://www.bbc.co.uk/blogs/thereporters/...
By azsk8fan

9/18/08 at 11:56 a.m.

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Blah Blah Blah, people, understand this - BOTH PARTIES are in this for their own personal gain -do you really think either party cares about the very people who support them - no, they ONLY care to protect their own fat wallets - both parties seem to think they have all the answers to get America out of the mess it's in - if that's the case then why wait till they see if they're elected - if they're so sure they have the answers why not share it NOW with ALL OF US and fix things NOW instead of waiting till they can take occupancy of the white, black or purple house....better we should all come to terms with the fact that it is what it is and it aint' gettin' better anytime soon - accept reality and learn to live with it - or not.
By KDR81

9/18/08 at 3:39 p.m.

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The Chinese are holding onto billions if not trillions in assets from foriegn countries. All this will do will lengthen the time before Armageddon sweeps their economy under.

You can't sustain a fixed exchange rate regime with artificially low (as the Chinese are doing) or high currency for long.

One day market forces pound on the door and sweep your economy under. The Chinese are doing this to maintain solvency a little longer.

THe US government is helping them out by engaging in debt and corporate bailouts.