Once upon a time, the United States of America economy caught a cold. It was a very bad cold. Soon it grew into financial pneumonia. Doctors at the Federal Reserve (Fed), Federal Deposit Insurance Corporation (FDIC), and Department of the Treasury convened to diagnose the illness.
This pneumonia came not with the usual signs of stuffiness and congestion. It was a case of desiccation. Credit had dried up everywhere. All those creative mortgage loans designed to maximize the number of American homeowners had failed miserably. Once people’s appetites to achieve the American dream were coupled with real estate investors’ greed, the result should have been obvious to those charged with regulating financial institutions. This is reminiscent of the story of the kid in the candy store. She eats everything in sight and suffers a terrible tummy ache. Our nation now has enormous indigestion.
Some in Congress responsible for overseeing the government sponsored enterprises (GSEs) that approved these shaky loans must have been too preoccupied with collecting campaign contributions from these same GSEs to notice the impending disaster. They thought all was well. It certainly was well for their political aspirations. Executive Branch agencies (Fed, Treasury), quasi-independent agencies (FDIC, Securities and Exchange Commission), and the Commodities and Futures Trading Commission also must have been too distracted with planning upcoming holiday festivities to espy the oncoming crisis.
And come it did, the crisis. September was a dreadful month. Well-known financial giants Merrill Lynch and Lehman Brothers were toast; the federal government took over Fannie Mae and Freddie Mac (GSEs); Washington Mutual was seized by the FDIC; Secretary of Treasury Henry Paulson and friends devised a financial rescue plan, a.k.a., the $700 billion bailout; and more – much more.
In the first week of October, the Stock Market dropped 22 percent, the most in 70 years. Financial dominoes continued to fall. The Financial Fairy had to work harder and faster – and with a lot more money. By the end of November, over $7 trillion were designated to contain the financial crisis. The Fed kicked in $4.75 trillion: $1.8 trillion for Commercial Paper Funding, $900 billion for Term Auction, $540 billion for money market investor funding, and more. FDIC programs contributed $1.55 trillion, mostly for loan guarantees, the Treasury Department’s $947 billion, of which the $700 billion bailout is a part, seemed puny in comparison, and, finally, the Federal Housing Administration $300 billion to guarantee loans for struggling mortgagees looked like a mere rounding adjustment. And to think this was all caused by creatively-designed mortgage-based securities bought, sold, re-bought, and re-sold on the belief that American home values would never decrease and mortgage default rates would never increase.
Now automobile companies want $25 billion. No, wait. It is $34 billion. Well, actually it could be $155+ billion. It depends. States and cities, too, are feeling the pain and are petitioning for assistance.
Each new day brings a new need. The latest is the Apelquist Multi-Child College Fund Crisis. This is the most insidious, of course, because it affects me. You may be experiencing a similar challenge. Whatever meager savings you may have amassed have declined along with the Market. Yet, college costs continue to rise. This is clearly a job for the Financial Fairy.
Where is that Fairy?
Fortunately, the Fairy – he or she, as it is hermaphroditic – is right here among us. It is we.
All we, which includes our leaders, must do is print additional money. After all, we are good for it – right? Besides, and this is the best part, we do not have to pay it back. We can let our children and grandchildren who have lived off our largesse all their lives pay the freight. Is that a great deal or what?
Do not let yourselves be troubled. Things are not nearly as bad as they could be.
And everyone lived happily ever after.
We have ourselves to thank for that.
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Fred W. Apelquist, III
Approximately 650 words.
© December 7, 2008
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