Just a glance at headlines like “Fed Pledges Top $7.4 Trillion” and “U.S. Government Comes to Citigroup’s Aid, Again” will induce winces in any reader the slightest bit aware of the roller coaster that has been the U.S. financial industry for the past couple months.
In the Citigroup bailout (the second in a little over a month, this one at $20 million and the previous at $5 million more), the federal government will get a $7 billion stake in the bank as well as extended control over Citigroup’s operations, including executive pay and stock dividends. In return, it will take on 90% of Citigroup’s losses on a portfolio of bad loans – a burden worth more than $300 billion.
Still, speaking of a roller coaster stock market, Citigroup’s market value did bounce back by 53% with news of the second rescue, and U.S. stocks in general had the biggest two-day rally in 21 years by the end of yesterday.
Obama revealed his economic team yesterday in Chicago and took the opportunity to press further for an economic stimulus plan.
“I want to see it enacted right away,” the Wall Street Journal quotes the president-elect as saying. “It is going to be of a size and scope that is necessary to get this economy back on track.”
And no one’s denying that such a plan – which congressional Democrats say will be on the new President’s desk on Inauguration Day – will have a huge price tag.
“These extraordinary stresses on our financial system require extraordinary policy responses,” Obama said.
In the meanwhile, GM got sent back to the drawing board last week, told to come up with a working plan to prove to Congress why a $25 billion bailout for the auto industry won’t be in vain. The largest U.S. automaker will be back in Washington the first week of December to discuss the company report – and this time, it’s said, they’ll be joining the other Detroit automakers in a caravan to D.C., not the companies’ private jets.
Home builders are also joining the bailout spree, lobbying Congress for a $250 billion “Fix Housing First” stimulus package that would give tax credits to home buyers and offer federally-subsidized mortgage rates. Builders point out that the real estate industry has been at the root of the current financial crisis and that until it’s stabilized, the nation’s financial problems will only snowball. But critics of a housing rescue say such intervention would “rewrite the laws of supply and demand” in the housing market and cause even more uncertainty.
Finally …Pope Benedict XVI may not have a solution to the global financial crisis, but a 1985 presentation he gave to a “Church and Economy symposium” can certainly apply in today’s instability.
It takes a real ethics, sustained by strong religious convictions, to develop an economic system that truly focuses on the common good, he had said. And, “conversely, it has also become obvious that the decline of such discipline can actually cause the laws of the market to collapse.”
Everyone, from media pundits to politicians whose own hands were deeper in the making of the financial crisis than they’d care to admit, lambasts the mentality of greed, corruption and downright hubris that ultimately led to Wall Street’s meltdown. Looking back with then-Cardinal Ratzinger’s words, we can wince again and say hindsight’s 20/20, but 23 years ago, the future pope’s prophetic vision was dead on.
Of course, now the question is, have we learned our lesson?
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