Bailout blues: 'The Economic Madness of George XLIII'

"It's a perfect storm. It started with Congress encouraging lending to lower income people. You went from subprime loans being 2 percent of total loans in 2002 to 30 percent of total loans in 2006. That kind of enormous increase swept into the net people who shouldn't have been borrowing."

— Blackstone Group Chairman Stephen Schwarzman, Wall Street Journal, Sept. 25

In a nutshell, this is what you need to know about the horrendous situation roiling both Wall Street and Main Street today: Congressmen, some of the very ones who have busily reshaped an administration plan to bail out U.S. (and foreign!) financial firms, are largely responsible for creating this mess in the first place.

They pressured Fannie Mae, Freddie Mac and other financial institutions to lend money to those who had no reasonable chance of ever paying it back.

The president did nothing to stop them. And what a warm, fuzzy feeling it must have been to give other people's money to those with poor or no credit so the disadvantaged among us could enjoy, if only for a little while, the things that ordinarily only the "rich" could afford.

Fom each according to his ability, to all according to their need. I somehow doubt this is what the framers had in mind when they talked about life, liberty and the pursuit of happiness.

What a crazy, mixed up time we live in. Do you remember when late Clinton-era budget surpluses seemingly stretched to far horizons and when learned economists, some of them Republicans, predicted the national debt would be reduced to near zero as early as 2006? What a difference we've seen in the last eight years. The public debt has not been retired. Instead, it's more than doubled, adding some $5 trillion to the bill future generations will have to pay, not counting enormous unfunded liabilities in Social Security, Medicare and Medicaid accounts. The budget deficit next year alone could surpass $1.3 trillion if the president's $700 billion bailout of Wall Street is passed in anything like the administration proposes.

It seems such a long time ago (actually 40-something years) when Everett Dirksen, another golden-tongued senator from Illinois, famously said, "A billion here, a billion there, and pretty soon you're talking about real money." Today, a critic of government spending might say "A trillion here, a trillion there ..." What's a trillion? A thousand billion.

The economic madness that history likely will record as one of the two hallmarks of George W. Bush's presidency is breathtaking. (What's the second hallmark? Fighting long, inconclusive wars in Iraq and Afghanistan, wars the world's greatest military power, competently led, should have won in a fraction of the time, and at a fraction of the cost already incurred. But that's another story.)

When government plays fast and loose with your money, the virtues of spend no more than you earn, pay as you go, and borrow only when absolutely necessary disappear. If government profligacy signals that today's dollar will be worth less tomorrow, it seems foolish not to buy and borrow today what you can pay for, or roll over, tomorrow. When you're swimming with sharks, be a shark!

But tell that to the millions of homeowners and other real estate investors who have seen the value of their property fall precipitously, even as measured in today's rapidly depreciating dollar. Tell it to the retired, to the elderly, to stockholders, investors and the simple folk who thought it prudent to save for a rainy day. Tell it to those who trusted banks, professional money managers, and financial advisers to exercise due diligence with their money. "Due diligence" has a curious, almost antique ring to it today. I can't imagine Wall Street ever using it, or even understanding what it once meant.The trust investors had in America's financial institutions has vanished in the present climate of fear. Anger and dismay have taken its place. If you are young and, as many of the young are, in debt up to your eyeballs, you face the very real possibility of losing the home you can no longer pay the mortgage on and the SUV you cannot afford to put gasoline in. If you are old, hoping to eke out a living on investment and interest income, your dilemma is even greater. Dividends have been slashed or have disappeared altogether. The interest banks pay on your savings has also fallen. And if you try to go back to work, who will hire you when you are old?

But perhaps the president and Congress, working together, have fixed the unholy mess we find ourselves in today. After all, they started it.

R.L. Schreadley is a former Post and Courier executive editor.