Now Showing: Uncle Sam as Santa Claus

Now Showing: Uncle Sam as Santa Claus

Well, we did it.  We passed $15 trillion dollars and the debt keeps rolling along.  I think the exact number is $15,007,011,750,997 or at least it was as of 10:00 AM yesterday morning.  By 10:01, the number had changed again. But don’t worry, there is plenty of money in Uncle Sam’s checking account. It reminds me of when the Bank Manager informed an elderly lady that her checking account was overdrawn. In reply, she said:

“I don’t understand it. I have lots of checks left.”

Sometime in the early 1970’s our government took on the aura of a wealthy person with the intent of righting all the wrongs in our nation with a bottomless checkbook.  Uncle Sam became Santa Claus.  Do you remember the Penn Central Railroad potential bankruptcy in 1970?  Penn Central appealed to the Federal Reserve for aid on the grounds that it provided crucial national defense transportation services.  The Nixon administration and the Federal Reserve supported providing financial assistance to Penn Central, but Congress refused to adopt the measure.  Penn Central declared bankruptcy on June 21, 1970, which freed the corporation from its commercial paper obligations.  To counteract the devastating ripple effects to the money market, the Federal Reserve Board told the commercial banks it would provide the reserves needed to allow them to meet the credit needs of their customers to the tune of $3.2 billion dollars.  So began the era of U.S. Government bailout.

In August of 1971, Congress passed the Emergency Loan Guarantee Act, which could provide funds to any major business enterprise in crisis.  Lockheed was the first recipient.  Its failure would have meant significant job losses in California, a loss to the GNP and an impact on national defense.  Another $1.4 billion was spent.  In 1974, the Franklin National Bank lost $63.6 million dollars.  The Federal Reserve stepped in with a loan of $1.75 billion dollars.  In 1975, President Ford signed the New York City Seasonal Financing Act, which released $2.3 billion dollars in loans to the city.

Of course, we all remember the Chrysler loss in 1979 of $1.1 billion dollars.  In 1980 the corporation requested aid from the government.  In that year, the Chrysler Loan Guarantee Act was passed, which provided $1.5 billion in loans to rescue Chrysler from insolvency.  Things seem to ease a little until 1984 when the nation’s eighth largest bank, Continental Illinois suffered significant losses after purchasing $1 billion dollars in energy loans from the failed Penn Square Bank of Oklahoma.  The FDIC and the Federal Reserve devised a plan to rescue the bank that included replacing the bank’s top executives along with a $9.5 billion dollar bailout.

After the widespread failure of savings and loan institutions in 1989, President George Bush signed and Congress enacted the Financial Institutions Reform and Recovery Act in 1989 with a $293.3 billion dollar price tag.  President Bush’s pen was barely dry when he signed into law the Air Transportation Safety and Stabilization Act, which compensated airlines for the mandatory grounding of aircraft after the terrorist attacks of September 11th.  This act released $5 billion dollars in compensation and an additional $10 billion dollars in loan guarantees.

In 2008, we had the Bear Stearns fiasco when the financial giant nearly collapsed.  JP Morgan purchased Bear Stearns for $236 million dollars and the Federal Reserve provided a $30 billion credit line to ensure the sale could move forward.  In the same year, Uncle Sam rescued Fannie Mae and Freddie Mac.  Under the terms of the rescue, the Treasury invested billions to cover their losses.  Initially the Treasury put a ceiling of $100 billion dollars for investment in each company.  Eventually the cap was raised to $200 billion dollars and the money was authorized by the Housing and Economic Recovery act of 2008.

The year 2008 was definitely the year that Santa Claus came to town.  AIG cost $180 billion and the auto industry another $25 billion.  In October of 2008, Congress passed the Emergency Economic Stabilization Act which authorized the Treasury Department to spend $700 billion to combat the financial crisis.  Citigroup received a $25 billion dollar investment through TARP, The Troubled Asset Relief Program, and then a second Citigroup bailout occurred with another $20 billion dollars in November.  Additional aid has come in the form of government guarantees to limit losses to $301 billion dollars.

Like all good things, the bailout keeps rolling along.  Bank of America has received $45 billion dollars through the TARP Program, which includes $10 billion originally meant for Merrill Lynch.  The total package is roughly around $142.2 billion dollars.  Where has all this money come from you ask?  Remember the $15 trillion dollar figure that was mentioned at the beginning of this article.  Yep, that is the golden egg.  But you say the worst must be over.  Not a chance.  The United States Post Office has lost over $20 billion dollars since 2007.  To cover its losses, the Post Office took a soon to be depleted $15 billion dollar line of credit from the U. S. Treasury in the early 1990’s and has been drawing on it ever since.  The USPS officials are asking for a bailout from Congress.  Why not?  Just about everyone else has asked for Santa Claus to come through for them.

As long as our government has a “Santa Claus” mentality and no one ever asks for a reconcilement of the billions and trillions of dollars that have been spent, the bailouts will continue.  The saddest part of this whole story is that the bailouts are being financed through debt that carries an annual interest cost that is approaching $500 billion dollars. Just to be clear, we carry interest expense on two types of government debt – debt held by the public, roughly $189 billion dollars and debt through intra-governmental holdings, roughly $192 billion dollars.  Intra-government debt is the debt that replaced the money that used to be in our Social Security Trust Fund and the debt that our Federal Reserve keeps spending to “stabilize” our economy.  Like the elderly lady said to the Bank Manager, “I still have plenty of checks left.”

Print Friendly, PDF & Email
Written by
Donald Wittmer