It's NOT a "Taxpayer" Bailout

An open letter to mainstream media financial journalists:

For the love of all that remains which is good about this country, please take the initiative to stop referring to the Fannie Mae/Freddie Mac rescue and the soon to be approved $700 billion Troubled Asset Relief Program (TARP) as "taxpayer" bailouts, or government rescues which stick "taxpayers" with the tab.

These would be taxpayer bailouts ONLY if actual taxpayers were being required to fund these bailouts, in the form of imposing higher taxes.

Since we're all Keynesians now, and have been since the early 1970s with the brief exception of the last year or so of the Clinton Administration when the government ran a general budget surplus, we have been required to borrow every single dollar necessary to fund our budget deficits, our midnight basketball programs, our crab mating habit studies and, yes, our military misadventures around the world.

And now Congress is being asked to approve yet another increase to the national debt ceiling to $11.3 trillion, up $1.5 trillion in only two months. Add in the $5 trillion of now-explicit government guarantees of Fannie/Freddie debt, and we now will be in the appalling and frightening position of government debt exceeding our GDP by a sizable amount, which, along with an annual goods and services trade deficit approaching $800 billion, is unsustainable even in the immediate future, much less the bleaker future likely to be inhabited by our children and grandchildren.

The only other instance in which our national debt exceeded the annual output of our economy was in World War II, which was temporary because we were a creditor nation with a huge goods/service trade surplus. Today we are dependent upon the surplus savings of developing nations, which likely may not be a reliable source of funds in the future, especially in light of a global recession.

We have been borrowing our way to certain future insolvency as a nation, and an increasing portion of that debt is owned by foreign governments, not all of which may be described as "friendly." If there is a recent historical parallel, think of Great Britain following World War II, with huge budget deficits and equally large trade deficits, dependent on the kindness of strangers, principally the United States. It was forced to divest its empire, and, in 1956 was blackmailed and humiliated by the U.S. with the threat of currency devaluation over its attempt to retake the Suez Canal.

Britain backed down in the face of fiscal blackmail, and if history doesn't exactly repeat itself, surely it rhymes as Mark Twain said, as it already has been suggested that Treasury Secretary Paulson capitulated to the Chinese (and other unfriendlies) Fannie/Freddie bondholders in the manner in which the mortgage GSEs were taken over by the government, preserving bondholders while throwing common and preferred shareholders under the bus.

We can be assured that if the manner in which Wall Street was to be rescued only involved a massive increase in personal and corporate income taxes, and not the issuance of debt, that the Administration and the Federal Reserve would be far more willing to let moral hazard reap its bitter harvest and allow all these irresponsible financial firms to fail.

Instead, we are being asked to fund the mother of all "let's-take-care-of-our-own" rescues, NOT as a taxpayer bailout, but more of a "Blanche DuBois" bailout in which we, the United States of America, increasingly are dependent upon the kindness of strangers to fund our wretched excesses.