Bailout and the Taxpayer: Where Do You Stand?

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September 9, 2008 06:57 PM EDT by Alexis Glick

Bailout and the Taxpayer: Where Do You Stand?

As you probably noticed in my last blog entry, I was not a believer in yesterday's rally. Frankly, I am skeptical about the current environment and the Treasury's hybrid decision to bail out Fannie Mae and Freddie Mac while maintaining shareholder equity. I am a realist and understand the options were limited given the current circumstances--but I'm over-the-top angry and frustrated about what this means for you and me, the American taxpayers.

It is not my place to point fingers. My colleague Charles Payne and I debated my last blog entry on television this morning, and he noted that I sounded like I was blaming the Republican administration. Yes, I do blame them, but I also blame the likes of Frank Raines and Greenspan for allowing credit during the Clinton Administration to become too easy accessible. I blame Congress, not the democratically elected Congress to which Governor Palin and Senator McCain refer in their Wall Street Journal op-ed piece today. Everyone should be held accountable for allowing this to happen. More than one person or one party was asleep at the switch. Frankly, in some small way, or maybe a big way, each of us is accountable for becoming money hungry. How many of us exceeded our credit card limits? How many of us thought a mortgage that we never heard of could give us our dream home? How many of us opted for an adjustable rate mortgage when our parents and grandparents would have said we were nuts. I did. I am just as complicit as anyone. I have an adjustable rate mortgage.

When I purchased my first home in 1997, I looked at a specific price range, realizing I couldn't afford the kind of house I wanted. I did some homework, heard about something called an 80/10/10 mortgage which allowed me to put 10% down and borrow 80% of the value of the home with my primary mortgage and then 10% which I paid monthly as a home equity line of credit. In essence, I bought my first home with a bank that lent me 90% of the value of my home. In hindsight, it was crazy. I don't know what I was thinking. At the time, I worked on Wall Street and paid the 10% down the minute I got my bonus. The day I signed the paperwork and filled out those initial checks at closing, I was sick to my stomach. I could hardly sleep the night before.

Enough about the past. Let's focus on the present and the future. Two things happened today. One, two tax experts joined me to talk cold, hard facts about our financial future and two, the Congressional Budget Office released its new projected federal budget deficit figures for the 2008 fiscal budget (whose fiscal year ends at the end of the month) and the 2009 fiscal budget.

First up, I was joined by Roni Deutch, a brilliant tax expert and Ron Geffner, a partner at Sadis & Goldberg and former SEC enforcement officer to talk about the implications for the American taxpayer. What can we expect when the new administration comes in, given the bailout of Fannie Mae and Freddie Mac? Have you considered what this will do to your paycheck whether you are in the lowest income bracket or not? How will the federal budget be affected by a ballooning budget deficit and now a $200 billion bailout?

As Roni put it, "there are six levels of tax rates. All tax brackets will need to be raised. It's the only logical solution. Call it the bail out tax. We're not only talking about personal income taxes, but raising interest and dividend taxes, capital gains taxes. Everything and everyone will be on the table." This, she suggested is the consequence of fiscal stimulus packages, a war in the Middle East and a federally orchestrated bailout of Fannie Mae and Freddie Mac.

The second thing that happened today is the release of the Congressional Budget Office's budget deficit estimates. The CBO projected a budget deficit of $407 billion for 2008 ahead of their last estimate and a budget deficit of $438 billion for 2009, which fell below the Bush administration's estimate last month of $482 billion dollars for 2009. While the CBO's estimate came in at a lower than expected number, it did not include the Fannie Mae and Freddie Mac bailout, which is projected to cost the government a minimum of $25 billion in the next fiscal year. While the estimate appeared light, everyone took it with a grain of salt, including former Secretary of the Department of Housing and Urban Development Henry Cisneros, who joined me on The Opening Bell.

Cisneros, who now serves as executive chairman of CityView, a company that helps families achieve affordable housing by working with the nation's leading homebuilders, said we are living in unprecedented times. He told me he has not seen or witnessed an event like this in at least three decades. When I asked him to walk me through the scenario that President-elect Clinton faced in 1992 when Clinton appointed Cisneros to secretary of the Department of Housing and Urban Development, he opened up about the closed-door meetings and summit that Clinton immediately requested to prioritize what his administration could do as opposed to what they had to do or what he had promised the American people. As you'll recall, Clinton ran on an economic theme that resonated with the American people, calling for tax cuts and a slogan saying, "It's the economy stupid." What he actually implemented once in office was something very different.

Cisneros stressed 1992 was different. This time around is much worse, despite the fact that over 3,000 banks failed in the 80s and only 11 have failed this year. I could see in his eyes, in his expression, in his years of experience, that this bailout was not an option in his mind. The results, the future would be different as a result. He noted the record level of inventories and delinquencies that needed to be addressed. He recommended something many politicians and economists were very familiar with in the late 80s called the Resolution Trust Corporation. It was a government-owned asset management company established in 1989 to help liquidate housing inventory, mortgage loans and financial assets that were taken over or inherited due to the failure of so many thrifts. He thinks it may be time to revisit an entity like that. What do you think? Is it necessary?

His interview is below. Cisneros made so many excellent points. He has been in the trenches. He has seen it all and he sounds scared. Is the fear overblown? Is the tail wagging the dog? Should we believe Uncle Sam is saving us from a much uglier fate? What would have happened if we allowed these two mortgage giants to fail? I want to hear from you. Is Cisneros right?

12 Comments

Tom

Isn't the bailout really a subprime loan to Paulson(U.S. government)? No details, no verification of the supporting money, no specifics of the way the money will be used. This sounds like more of the same except instead of Financial management its unelected officials that helped create the problem being in charge of correct the problem. Bad Idea.

September 22, 2008 at 11:49 am

John Dillon

At least if Alexis' taxes are raised thats OK since she benefitted from the lax rules and quite frankly she was part of the problem. Imagine how I feel. I was responsible and knew I couldnt afford to buy at that time. So, I waited for the eventual crash in housing prices (remember its an economic cycle, it expands and contracts). Now I am considering buying, actually building a vacation home as I continue to rent in NYC. However, now I have to rethink this because I am going to be taxed by my government (Republican or Democrat) to pay for others irresponsibility. It's just not fair. Maybe we could identify all the people who were irresponsible and only raise their taxes. (I know, thats laughable but I'm pissed that I can't have my slice of the American dream and yet I did nothing wrong!!!)

September 11, 2008 at 11:42 am

B Scott

This whole financial mess has been planned for many years,those in power(dems or reps)knew the only way to introduce a new world order was to destroy the current world order.A new financial system (cashless)is already in place.I will suggest that in the not too distant future,we will wake up one morning to be informed that our economic system has just cratered,but do not be dismayed those in power have (overnight) come up with a new system, gee these guys are good.

September 10, 2008 at 1:22 pm

Sheldon

I just want to second Andy's comments. There is much more going on with the bailouts and failing banks - less than 2% of all mortgages are in foreclosure. How does 1.9% account for such a meltdown!

September 10, 2008 at 1:17 pm

stephenlee

Our elected officials never ever pass a budget. They only have a spending plan that enables them to buy the votes they need to stay elected. Look how easy it was to pass the stimulus plan of 150 to 160 billion that just added to the deficit. They never ever cut ! Even clinton never had a balanced budget when you take into account he was spending the social security trust fund. The olny solution is higher taxes on everyone and to hope the next elected party will spend it wisely and not add any new programs because we can hardly afford the ones we now have. Alexis you do a great job of reporting. Keep up the good work!

September 10, 2008 at 12:55 pm

Susan B.

Alexis, Not all of us were caught up buying homes we couldn't afford, some of us lived within our means, bought a home we could afford, then doubled up on our monthly payments to get our mortgage paid off in half the time, so that we would not be burdened with debt the rest of our lives... now we (and our kids)are back in debt courtesy of the US government. We are being punished for being responsible while others are rewarded for their greed and stupidity. I want to know who is responsible. I want their names, and I want to see them rot in jail. Or, a public hanging might be more appropriate, (save the tax payers a little money.)These are truly sad times for America. May the ghost of Thomas Jefferson torment them until the day they die.

September 10, 2008 at 12:01 pm

Dana Swan

Additional Info on Long Cycle Comment, Ben Bernanke was the money and momentum behind the Treasury bail out of Fannie may and Freddy Mac.

September 10, 2008 at 10:13 am

chuck

I like to know how would Senator Obama resolve this problem. He hasn't made any public statements on this issue since the story has been developing all week. Where does the left wing Democrats stand on this issue? They haven't said nothing of this bailout but they're just as accoutable.

September 10, 2008 at 9:45 am

Andy

I am glad that FOX nexs and others are covering the bailout of Fannie Mae and Freddie Mac. What is most ridiculous is the talk over the Feds allowing these execs to leave office with cash payouts for options and serverance packages. They managed the Company poorly, exercised little restraint in risk management, and along with others drove the mortgage industry to the brink of disaster....and now not only do the taxpayers have to pay for the bailout, but these execs are to get compensated on the way out. I don't think so! If anything these execs should be repaying the plush compensation packages that they have enjoyed over the past years. The people of this land, with the help of the press, need to stand up and see that justice is served. Look we all make mistakes and I wish Mr. Mudd and Mr Syron opporunties for future redemption and service -- this is America. But let's make sure that there are consequences for mismanagement. PLEASE ESCALATE THIS IN THE NEWS!!!! I pay my mortagage monthly, now I have to pay to bailout Fannie Mae and Freddie Mac as a taxpayer, and on top of that I have to pay for Mr Mudd and Mr Syron's undeserved lavish lifestyles.

September 10, 2008 at 1:55 am

Edward F. Agans

I think that the top Management of both companies should have to pay the bill Not the tax payer. They where paid big money to run them and they failed.

September 10, 2008 at 1:39 am

Gene Colburn

The handout and globalization policies of the past administrations beginning with LBJ are in reality a feeding frenzy on the carcass of America. One in honesty can not say who the bigger buzzards truly are. But this bailout will leave only the skeleton of a once wealthy nation. Socialist trends bring Socialist dictum's. Welcome to the USSA

September 10, 2008 at 12:06 am

David Custis Kimball

Alexis, The problem begins with real estate being different than what are mercurical stocks. There are no ready Puts option once you own a piece of the American Dream. You can't sell short your farm with 4 miles of spring-fed streams and hardwood forests and lillies every spring blooming near a watercress choked spring bubbling clear into a beaver knawed S shaped and twig packed dam that has flooded a little field next to a clearing where there's a whole lot of footprints...and not from high heeled sneakers, but cloven and shy herds of Bambi's cousins. In real estate there is a leap into and out of the environment. If you paid too much or your cash dries up....you must leap out by allowing someone else to leap in. If it's flooded, you only get frogs offering to leap in .... no princes... so the idea is to create a design of bucolic pools, grand vistas and lots of life vests to attract the adventurous prince (or princess)...or white knight if there's any rabbit holes to flood....you get my point. Of course that might be expensive...creative or even time consuming....and keep you away from the Hamptons just too often.....so there's a fire sale, flood sale and an I quit....get out...I can make more money tommorrow with my fish bait or another rationale. The human Put out because I can take any loss. Such was the case with the Resolution Trust Corp. of 1989 during Bush 41. They were the agent to find cash for the exasperated....and by doing so monopolized the effort. I remember a shopping mall on the NE corner of Glades Rd. and 441 that was purchased by GE for about .10 on the dollar or less than $10 per square foot for a several hundred thousand square foot of actively rented areas including retail, movie theater, etc.... What would have happened otherwise. A bank would have eaten the nonpayment or had to hire teams of lawyers, etc....and disrupted the community. Cisneros, who may have mass connections to cash, say with Bill Clinton's Oil Sheik connections where they are waiting to take control of vast areas at a huge windfall discount....quadzillifying the ravenging of people for oil products... or rather wisely leveraging those paltry billions. Or maybe buying them all up and allowing illegals to occupy them....just in time for the census where our constitution doesn't seem to differenciate citizen from person...except of course if they are native american. That way politicians get to top on the welfare benifits for representation, food, housing, roads, free ice cream...you get the idea. (maybe we need not to count illegals in our census of American Citizens....duh) What about getting William McDonough, Paolo Soleri, Don Trump, Gerald Hines and others (maybe myself representing the spirits of Henry V. Spurr and George A. Kimball, who were a large part of building NYC, Boston and Panama Canal respectively...) Come up with ideas on how to spruce up these downtrodden properties...Call out these Put out areas of neglect, or poor design...then allow us to partner with the owners to market these little puppies...hey we need factory space for lithium ion batteries, ultracapacitors, etc. If government is to take them over...it must be transparent....and obviously to benefit anyone who is able to share in a response....that is responsible and within the framework of building our American Infrastructural base so we can and do support more and more deserving persons of good heart. David Custis Kimball Construction Consultant - Design FEMA Hazard Mitigation Specialist Writer, Publisher of Import and Expertise

September 9, 2008 at 11:39 pm

about this blog

Alexis Glick is an anchor for FOX Business Network. Prior to joining FOX, Glick served as a correspondent for the Today Show and co-anchored the third hour of that program. Before her stint at NBC News, she was the senior trading correspondent for CNBC and reported from the floor of the New York Stock Exchange.
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