Torch, Spring/Summer 2009

Spring–Summer 2009 | TORCH 7 claims plunged, causing massive losses to financial institutions. Losses were so immense that some of the largest financial institutions in the country failed almost overnight. Even government- sponsored entities like Fannie Mae and Freddie Mac collapsed. Undoubtedly, fallout from the CRA was the spark that touched off the powder keg created by America’s reliance on debt and the federal government. The “B” Word The word of the last 12 months has been “bailout.” As the recession that began in December 2007 grew longer and deeper, giants of American finance and commerce began to teeter on the brink of bankruptcy. First, financial institutions received a $700 billion federal bailout. Then, CEOs of America’s Big Three automakers headed to Washington looking for a handout from Congress. When Congress refused, President Bush obliged, making $17.4 billion in loans available. He insisted that allowing automakers to enter bankruptcy would be too big a blow to our economy. Bailout of the automakers sent a bad message to other corporations and municipalities in America: If you get into trouble, Congress will bail you out. By the end of 2008, commercial real estate developers, newspapers, states like California and New York, and cities such as Detroit had come to Washington to plead for bailout funds. They all seemed to think they were somehow entitled to everyone else’s tax dollars. Obama’s Solution Last November, America elected Barack Obama as president. Unfortunately, his solutions to our economic crisis include increased government spending and further taxes on those making more than $250,000. These two approaches have repeatedly been ineffective in reversing economic downturns. Increased government spending will lead to higher taxes and public debt, both of which are detrimental in the long run. Increasing taxes on the so-called wealthy will further erode the economy’s ability to create jobs. By December 2008, in addition to more than $1 trillion in bailouts previously authorized, President Obama was already laying groundwork for the $787 billion stimulus package. Ironically, he considered this a sign of fiscal restraint, as some economists had recommended a $1 trillion package. On February 17, he signed the stimulus package into law — and began talking about another. Where to Go From Here It won’t be easy, but we can find a way out of the current crisis. First, the tax policy must be restructured to encourage entrepreneurial activity. This would increase our economic base by providing long-term jobs. However, since a component of the restructuring would have to be tax cuts, this is politically unacceptable to many. DARIN MCGREGOR / AP As Vice President Joe Biden looks on, President Barack Obama signs the $787 billion economic stimulus bill at the Museum of Nature and Science in Denver on February 17, 2009.