Bailout: No Avoiding the Pain

According to the dictionaries, the word “bailout” as a term applying to corporate financial rescue was coined in the early 1950′s.  I am not sure what was happening at that point in the U.S. economy that such a term became necessary, but perhaps it was the post-WWII economic boom that created companies that grew too fast and needed then to be bailed out.   An old parental adage which says, “little kids, little problems; big kids, big problems,”   apparently also applies to the corporate world and to the U.S. economy as a whole.

The unprecedented “growth” of the U. S. economy beginning some 30 years ago was enjoyed by many, especially those at the top.   It was based in sectors of the economy who boomed or ballooned and then in recent years we began to experience these sudden growth spurts for what they were – empty bubbles that burst.  Much of the unparalleled spending spree by Americans, which was a driving force in this supposedly robust economy, was actually resting upon an unparalleled growth in personal and corporate debt – the booming economy’s foundation was an ever ballooning debt.  The huge vaporous emptiness which the debt represents was somehow thought of as both our wealth and also was the supposed bedrock on which the entire structure called the U.S. economy was being built. 

Not being an economist, I can’t understand how these things came to be believed, but they were, and the banking, stock market and real estate booms were inflating the voluminous bubble that couldn’t sustain the weight of the skyrocketing economy.   Apparently it was addicting to watch the economy grow in this way because people kept looking up at the unlimited growth rather than down at the foundation upon which this growth was being built.   Too bad some economic structural engineers weren’t called in to offer a safety opinion on whether in fact debt could bear the load of the economic building.

So I found listening to  Morning Edition, February 27, 2009, painful as the title of the story implied:  Taxpayer Beware: Bank Bailout Will Hurt.   The entire 30 year economic boom was a big party to which I did not attend, and yet I am going to be stuck with the bill.  I have no credit card debt.  I have faithfully paid by mortgage.  Admittedly, I have had very few vacations, do not have an expensive car and do not own a brand new spacious home with all of the modern devices others couldn’t live without.  I don’t have a lot to show for the 30 year economic boom – no investments, no savings account, but a mortgage and some college loans I had to take out to keep kids in college.

One of the factors that got us into our current problem is debt, pure and simple.   For most years, the amount of debt Americans owed was about 50% of the value of the entire U.S. economy.  But then between 2000-2008 (where were the fiscal conservatives?), our debt skyrocketed and equaled the value of the gross domestic product of the U.S.:  13 trillion dollars.  The last time that happened was 1929. 

David Beim, a former banker who is now a professor at the Columbia Business School has an explanation for what happened.

We have overborrowed, Beim says: “We’ve been living very high on the hog. Our living standard has been rising dramatically in the last 25 years. And we have been borrowing much of the money to make that prosperity happen.”

In other words, the problem the banks are facing is the problem we, as a society, are facing: We all have too much debt. And getting rid of it is going to be painful.

If you want a solution in which those who bear the most guilt for the financial crisis pay the most to fix it, while the innocent don’t have to pay anything, that’s not going to happen.

It seems that the U.S. economy is way past that point. Americans are going to spend a lot of money. The government may bail out some banks that some people wish it wouldn’t. There is no magical solution where the U.S. gets out of this mess without any pain.

While they might disagree on who will bear the brunt of that pain, all the experts interviewed for this report say the longer the U.S. waits, the worse it will be for everyone.

So whether you participated in the problem or not, you are going to have to pay these economists say.  No wonder web pages such as Stop the Mortgage Bailout have arisen;  for it does seem as if the prudent taxpayer is being forced to pay for the excesses of those who over borrowed, those lenders who promoted over borrowing for their own profit, and those who inflated housing prices and their corporate bottom lines.    The economic boom was based on an economic balloon over inflated  by excessive borrowing and lending.  Now we are seeing the price tag for this.  Who could have known we would have to pay our debt?   I mean as Christians don’t we pray “forgive us our debts”?

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