More of the same from DC
Government officials in Washington, DC are obviously lost at the helm. Even though Treasury secretary Tim Geithner acknowledges that government-sponsored mortgage giants Fannie Mae and Freddie Mac were “a core part of what went wrong in our system,” the Obama Administration has pledged to “cover unlimited losses through 2012 for Fannie and Freddie,” according to the New York Times.
Now, after the administration lifted a $400 billion limit on bailouts specifically for Fannie Mae and Freddie Mac (that’s right – the limit was $400 billion and it had to be removed), Fannie is asking for an additional $8.4 billion and Freddie is asking for $10.6 billion more. At the same time, the “financial regulation” package being sought by congressional Democrats would include a further strengthening of the Community Reinvestment Act which requires Fannie and Freddie to buy up unsound, subprime loans. From all indications, it looks like the Obama Administration and congressional Democrats are intentionally trying to engineer the next major recession by doubling down on all of the policies that are responsible for the real estate bubble and ensuing collapse.
Meanwhile, the administration is also trying to facilitate governmental moral hazard across the globe by contributing $6.8 billion in US taxpayer dollars to the bailout package for Greece. A nation that spent itself into fiscal catastrophe by promising unaffordable pension plans and social services to workers retiring in their 50s is now being rewarded for that irresponsibility with US tax dollars. Gee, I wonder if that precedent will compel other nations with shaky finances to undertake needed reform of their labor markets and government entitlement programs. Why would they, when they can be assured of an American-financed bailout?
And how will this affect the individual American states that have large unfunded liabilities in their pension systems for public sector retirees? Nevada’s unfunded liability now sits at $33.5 billion on a market-priced basis. Is there now an assurance of federal bailouts for state pension plans as well? Will the federal government shift the burden of some states’ fiscal irresponsibility onto federal taxpayers for the next several generations? Will relatively low-income families in Alabama be forced to pay for the exorbitant benefits promised to public-sector workers in California?
Certainly, that will be the desire of public sector workers who believe they are entitled to the benefits they were promised, regardless of whether the states can afford them. In Greece, fears over cuts to public worker benefits prompted riots by those workers.
In one instance, rioting public sector workers killed three private sector workers and lit policemen on fire.
Thankfully, Nevada has not gotten to that point but, clearly, there is a feeling of entitlement among the well-paid public sector workers in the Silver State. Let’s hope that things do not escalate to the point that we have seen in Greece.