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Don't get me wrong. I think the bailouts could have been handled much, much better. We should have carved a pound or two of flesh out of each and every fatcat who benefitted from them. But here is what I *believe* would have happened had the govenment not taken action:
Step one: AIG goes into default; goes into liquidation. Middle-class annuitants screwed as their annuities are frozen as courts decide who gets precedence in bankruptcy - them or Goldman Sachs.
Step two: Goldman wins! Annuitants "safe" investments now worthless. Pensioners plunged into poverty.
Step three: Bank of America, Wachovia. and other national banks go into liquidation. Taxpayers on the hook for massive payments to restore FDIC insured accounts to 100,000 limit.
Step four: Business lending in the U.S. essentially ends. Cash flow concerns lead to huge wave of bankruptcies of small to medium sized businesses.
Step five: Official unemployment rate hits 15%. Burden of transfer payments and FDIC payments cause deficits larger than alternate timeline.
Step six: Republicans in Congress call for massive income tax cuts to spur ailing economy. Make Bush cuts permanent and extend additional cuts to *investors* Controversial plan passes thanks to Blue Dogs.
Step seven: Lack of lending and delayed effect of business bankruptcies lead to worsening unemployment. Official rate hits 20%.
Step eight: Collapse.
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