20 December 2008

Fast Track to a Bankrupt Nation

Now that President Bush has apparently authorized some of the TARP money to bail out the auto industry, everyone expects others to line up for their share of the TARP funds. The $700 billion TARP (troubled asset relief program) was supposed to only go to financial industries; the public was told that the financial sector - lending and mortgage firms in particular - were supposed to be the source of our nation's economic woes. These institutions, we were told, were simply too big to fail. Though some did, and were allowed to (yet the sun still rose).

Now, after being turned down in Congress, GM and Chrysler have gotten a TARP handout from the executive branch. (Ford did not take any money, but may well reap rewards of any UAW concessions.) I don't doubt that the Congressional effort was more of a punt until after January 20th than anything else. President Bush's blessing of the release of TARP money is much the same. Under his "plan", GM and Chrysler would have to prove that they could become "viable", they must have a plan, by March 2009. If not, they have to pay their billions back…even though they won't have them. They're broke, and if they spend their TARP allowance, they'll be broke again in March. But never mind; we are told that GM and Chrysler are too big to fail.

One must wonder, then, which things are not too big to fail.

California is in a serious financial crisis - $38 billion dollars worth of shortfall. Will TARP funds, or some yet to be created federal money transfer program, bail out states and municipalities? Will they all be too big to fail?

Is the New York Times too big to fail? Supposedly the "paper of record", the company had to mortgage its own building recently to inject itself with cash. Will it become, in some form of twisted logic, too big to fail? Will it become a government paper of record?

Surely there are many more businesses and institutions waiting in the wings for federal largesse. It's the idea that something can be had for nothing. Yet the billions and trillions that are being created seemingly out of thin air will come to account at some point in the future. And while some may say that the day the bills will come due for this recent spending spree will be some day long in the future, I do not agree. The bill will come due much sooner, I believe, then anyone wants to believe. The imaginary land where capital value can be created from nothing can only last so long. With the rapidity of developments in our (seemingly) ever-shrinking financial world, it seems reasonable to believe that the real world will come crashing in sooner rather than later.

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