Friday, November 14, 2008

A Question for the Ages (Especially This One)

The information as to just who is getting how much in the ongoing bailout is now public. These were the first Nine in Line, as of 10/29:

1. Bank of America ($15 billion)
2. Bank of New York Mellon Corp. ($3 billion)
3. Citigroup ($25 billion)
4. Goldman Sachs ($10 billion)
5. J. P. Morgan Chase & Co. ($25 billion)
6. Morgan Stanley ($10 billion)
7. State Street Corporation ($2 billion)
8. Wells Fargo ($25 billion)
9. Merrill Lynch ($10 billion)

And this is just from the Treasury. (You can follow its money outlays here, as they are updated.)

Meanwhile, the Fed and the Treasury are having to pool resources in order to bail out insurance giant AIG. You can read about the gruesome details (to date) here---$150 billion and climbing.

But these are just drops in the bucket. Among them, the Fed, the Treasury Department, and the Federal Deposit Insurance Corporation (which pays off depositors in failed banks) have committed to date five trillion dollars (that's 5 followed by twelve zeroes, or in figures, $5,000,000,000,000.00) of our (present and future) taxpayers' money to these ludicrous bailouts.  Well, guess what: that amount is more than a third of our current Gross Domestic Product (GDP), and almost equal to the hugely bloated share that all government (federal, state and local) now contributes to the GDP by spending the taxes it collects from us and the proceeds from selling bonds. (The share of all government spending as a percentage of GDP has gone from 12% before 1930 to 43% today). It is also equal to about half of the current debt ceiling of $10.6 trillion---what is so quaintly called the "national debt". So what these figures mean is that, thanks to all the bailouts to which just the Federal Government has committed us, the United States has to raise, on top of what it now spends, a sum equal again to what all the governments in the country raise and spend in a year, and half again as much as it already owes. 

[UPDATE 11/24/2008: Well, here we are just ten days down the road since I posted the above news, and the total outstanding pledges have jumped by fifty percent again, to a new cumulative total of $7.4 TRILLION DOLLARS---fully one-half of the entire output of this country over the past full year. (And that was during the time of a boom! Watch what happens as GDP sinks in the recession-to-depression phenomenon that is occurring in front of our eyes as I write. Your politicians, and the bureaucrats who prop them up, have lost their collective minds!]

Let me put this into an individual perspective. If we subtract out what the government receives from social security and retirement contributions, its total revenues for fiscal 2007 were about $1.86 trillion. It's as though you, with an income of just $18,600 per year, and who had already tricked the banks into lending you a total of $106,000, took on a further loan for $50,000, so that you now owed more than eight times your annual income. Do you think any individual would actually be able to do that without committing massive fraud? But this is the mentality that overtakes you when you get elected to Congress---it's not your money, so you spend it like a drunken sailor in exchange for promises to get re-elected. (In fact, as Martial Artist justly points out in the comments below, at least the hypothetical "drunken sailor" is spending his own money, and not other people's. So even a drunken sailor is better than the average tax-and-spend, earmarking member of Congress.)

And now the Democrats are talking about still more bailouts, to the auto industry, after Obama takes office! This proves H. L. Mencken's great witticism that "Every election is a sort of advance auction of stolen goods." The auction was held, and Obama outbid McCain in his promises to spend your money (as soon as he gets the power to steal it).

All this debt is scheduled to be passed on to later generations, to our children and to their children. We have literally mortgaged their future, and it were well to recall the etymology of the word "mortgage"
The great jurist Sir Edward Coke, who lived from 1552 to 1634, has explained why the term mortgage comes from the Old French words mort, “dead,” and gage, “pledge.” It seemed to him that it had to do with the doubtfulness of whether or not the mortgagor will pay the debt. If the mortgagor does not, then the land pledged to the mortgagee as security for the debt “is taken from him for ever, and so dead to him upon condition, &c. And if he doth pay the money, then the pledge is dead as to the [mortgagee].”
So if our children cannot pay back the money that we borrowed and spent on things like bailouts, the future will indeed be dead to them. When will the madness stop?

Long ago, in another era, we had a leader of principle, who foresaw the slippery slope down which we are now sliding ever faster, and who did what he could to prevent it. There had been a severe drought in western Texas in 1887, and Congress voted to appropriate the sum of $10,000 (equivalent to about $600,000 today---a trifling amount for government) to help farmers purchase seed. But President Grover Cleveland, that man of principle, vetoed the bill and sent it back to Congress with these words (I have added the emphasis):
I can find no warrant for such an appropriation in the Constitution; and I do not believe that the power and duty of the General Government ought to be extended to the relief of individual suffering which is in no manner properly related to the public service or benefit. A prevalent tendency to disregard the limited mission of this power and duty should, I think, be steadily resisted, to the end that the lesson should be constantly enforced that, though the people support the Government, the Government should not support the people.
The veto message went on to suggest that “the friendliness and charity of our countrymen can always be relied on to relieve their fellow citizens in misfortune,” and pointed out that “individual aid has to some extent already been extended to the sufferers mentioned in this bill.” Further, President Cleveland reminded Congress that they already had appropriated earlier that year the sum of $100,000 to purchase seed for each Congressman to distribute as he saw fit in his home district. (Yes, the practice of spending other people's money to curry favor for re-election has been with us since the government began---in 1789 the politicians bought voters rum, and in 1887 they passed out free seed.)  So he said that if Congress really wanted to engage in an act of charity, they might pool their individual allotments and deliver what was required to the farmers of West Texas. 

(The full text of the veto message is found in Vol. XVIII, Pt. 2 (49th Cong., 2d session [1887]), at p. 1875.) Grover Cleveland's wisdom can be expressed in the form of a rhetorical question, as follows:

If the Government supports the people, then who will support the Government?

I guess we're about to see.


  1. Hi,
    Minor correction: That list of bailouts to the bank should be in billions not millions, e.g., 1. Bank of America ($15 billion), so it adds up to $115 billion spent as of 10/28/08.

  2. Grover Cleveland, the "Guardian President" is remembered for his use of the veto, and marriage to his young ward. Guardian indeed. I seem to recall there was a depression during his era. I wonder if he let it run its course without interference?

  3. That's right, UP. The Panic of 1893 started just before he took office, and the country went into a depression that continued for Cleveland's entire second (split) term. The Democrats took the blame, and the result was that the Republican McKinley won the 1896 election.

    I wonder whether we will see history repeat itself.

  4. Dear Curmudgeon,

    As a retired Naval officer and prior enlisted sailor, I noted with special interest your use of the phrase "spend it like a drunken sailor" to describe the actions of what is (to a very great extent unfortunately) our national legislature.

    In response I feel obliged to point out that, when the drunken sailor spends all of the money at his disposal, it is his own money that he is spending. This is quite unlike Congress, which, when it spends all of the money at its disposal (or even more money than is truly at its disposal), it is spending what is to a very great extent not its own money, but rather, our money.

    I believe that there is at least one sense in which you owe all drunken sailors an apology for the insult offered. ;-)

    Blessings and regards,
    Keith Toepfer

  5. Dear Martial Artist, you are so right to catch me up on that gratuitous insult to your noble former calling. I have added a correction, and you have my profound apologies. To think that I could have stooped so low as to have brought, even generically, one of your fine colleagues into close comparison to such a despicable specimen as a Congressman trying to get re-elected!

    I move that we support a new metaphor: "to spend money like a pandering Senator." (Someone else can figure out the one for Representatives.)