Corporate Socialism: More Camel Straw...

The corporate conga line continues this week as more companies continue to line up to ask the federal government to bail them out, er, to provide temporary funding in an unsteady market. You may have heard the term corporate socialism, which has been defined as the phenomena when companies reap profits and socialize the losses (meaning when the market is bad to them they look to the federal government to cover the losses).



How does this affect you? First, a quick reminder of what the heck is going on. I think the blogger from Electoral Vote has a pretty good look on this:

Decades ago, when you wanted to buy a house you went to local bank and applied for a mortgage. If the mortgage was less than three times your annual income and you had a good credit history, the bank would loan you the money and you would pay them interest and some principal every month for 30 years. Then Wall St. got a bright idea: buy up all the mortgages from the banks, collect a few thousand into a pool called a CDO (Collateralized Debt Obligation) and sell shares in it. The owner of each share would get a pro-rata share of the incoming monthly mortgage payments…



What happened? It sounded like a great idea and soon all mortgages were sold and repackaged into shares. It didn't take long before the banks realized that they could issue mortgages of five, six, even eight times the buyer's annual income or sell them to people with terrible credit histories. After all, the shaky mortgages would soon be somebody else's headache. That's what happened. Lehman, Merrill, and others bought billions of dollars of mortgages that the homeowners had no hope of ever repaying on schedule and nobody wanted to buy shares in these worthless CDOs, so the brokers got stuck holding the bag with billions in worthless loans.

So essentially,

Remember earlier this year when Bear Sterns had the Fed bail them out (with the help of the federal government). That was only the start apparently.

- Then there was the nationalization of mortgage companies Fannie Mae and Freddie Mac which own a large percentage of the mortgages held in the U.S.



- This week, Lehman Brothers filed for bankruptcy protection,

- Bank of America, who bough Countrywide financial has now bought Merrill Lynch.

- Washington Mutual is in a danger zone,

- And so is AIG, which was "helped" by the State of New York, who not only let AIG lend $20 BILLION to itself, but apparently has a lot of money they haven't told us New York Residents about.



Basically, it almost seems if you have a commercial on TV, you've got problems.



…and not too far behind these guys is the three major car companies from Detroit, who are all looking for help resolving their debt but haven't come hat-in-hand..yet. All these companies are now asking for help from an over-burdened government which already has a $400 BILLION dollar shortfall. For our sakes, they'd better pick their battles. Because in the end, it's not "The Government" that will pay these bills. They will either print more money to pay the balance off (really bad) or just spread the costs among the taxpayers (bad, but not so much in the eyes of the government).