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'Toxic Assets' May End Up More Toxic To Taxpayers

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DONALD J. MYERS

A Mind of My Own

Published: March 28, 2009

There has been so much misinformation about so many of the different financial crises facing the country over the last few months. Unless one is paying very close attention to what is being and not being said, one can become totally confused.

The amount of money that is being proposed to possibly solve these problems is obscene. You know that we are in trouble when billions of dollars is not considered a lot of money.

On Monday, the administration announced its plan for eliminating the "toxic assets" and the stock market roared its approval by climbing almost 500 points. That was great news for many Americans. The plan calls for a partnership between the government and private investors.

These "toxic assets" are essentially bad loans for properties. The estimated losses for these bad loans are in the area of a trillion dollars - give or take a few hundred billion. The government plans to batch some of these loans and offer them at an auction for private investors.

What hasn't been made too public is that the government will lend these private investors the money to bid on these batches of loans. The private investors will only be required to put up 7 percent of the money. The government will put up the rest, and if the deal turns sour, the private investors are not required to repay the debt to the government.

That means that we the taxpayers will be stuck again.

This is a fantastic deal for private investors, but why would our government think that it is so good for it? This sounds exactly like the sub-prime loans to banks that were covered by the government to get us into this mess in the beginning.

These properties are estimated to be worth perhaps 30 percent of the original debt and the government hopes that the private investors will bid them up to possibly 50 to 60 percent of their original value and the banks will be able to rid themselves of these bad debts.

The lure is that the private investors will be able to make a profit if all goes well, and the government and banks will rid themselves of these bad debts. I don't quite understand why these mortgages are only worth so little if these homes had recently been occupied, but that is for another article.

Profit is a great motivator for businesses, but I am sure that any of these businesses that are thinking of bidding on these loans remember what just happened in the U.S. House of Representatives.

The House passed a special bill to tax the bonuses of AIG managers at 90 percent even though the same government allotted the bonuses in the first place. The Senate has yet to take action.

What is to prevent the same Congress to tax what it considers excessive profits from these auctions if that does happen?

I doubt if anything will prevent it from doing that and as a result, the auctions may be another failure.

Representative Charlie Rangel, D-N.Y., said as much about taxes on Fox TV last Sunday.

If this does not work, then the government is considering nationalizing those banks in trouble.

Gee, just what I want - talking to a government bureaucrat in order to get a loan from my bank.

This is not as far fetched as one may think. Just this past Tuesday, the government asked for the authority to seize any organization that has a significant financial impact on the country and is not doing well. The treasury secretary would be in charge.

That makes me feel so much better since he has done such a fantastic job so far!

Donald J. Myers, a retired colonel in the U.S. Marine Corps, is a regular columnist for Hernando Today. He lives in Spring Hill and can be contacted at dmyersusmc@aol.com.

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