Of fairy tales and other horror stories

Imagine this modern-day scenario. We can even start this off with: once upon a recent time, a very small bunch of clever big people set up a scheme that made them a huge amount of money over many years. Then, in their greed to make even more money than reasonably could be expected, they overextended themselves in a new get-rich-quick plan and got caught in the act.

They got caught because it all fell apart. This resulted in a very small bunch of clever big people losing a lot of money. One would think that this could be considered a form of justice. After all, this very small clever bunch of people had been enriching itself. What’s more, this get-rich-quick scheme was at the expense of many, many little people.

Of course this is nothing new. In olden days, kings and queens did the very same. No wonder the British Queen is one of the wealthiest people around. Some Christian churches also had a fair-sized scheme going: pay for your sins and that kind of money-making racket. As in the story above, many, many little people were paying to enrich a few clever big ones.

And as it was in olden days when the kings, queens and popes ran out of money because they invested in some foolish scheme that backfired — such as wars or overspending on cathedrals and palaces — the many, many little people had to pay more taxes to make up the deficit. This happened in many cases under great duress and was accompanied by major suffering.

Enter the “Credit Quake” as it is so aptly named on BBC. This quake is represented by investment banks closing their doors or being bailed out, banks being merged, insurance companies getting government loans, stock exchanges tumbling downhill and in general a bunch of grey and pale-looking men tearing around aimlessly in panic.

After a few days of panic the US government, where much of this overzealous money-making racket happened, decided that it should help out to protect these few clever people. Of course, as an aside, a fair bit of the developed world aided and abetted this disaster by buying up a bunch of “paper” that basically represented rubbish investments. The US government is pretending it is helping in order to protect the many, many little people.

These “papers”, now termed toxic assets — love that expression — will now be paid for by a fund that the US government will set up, thus relieving the financial institutions of a load of valueless investments; that is, those bits of paper that they weren’t able to sell to other financial institutions outside the US.

They did manage to get rid of a fair bunch of worthless papers. There was sufficient of the stuff sold that one bank in the UK had to be bailed out by the government, one mortgage lender had last week been bought by another bank and a whole bunch of German banks were bleeding because of some very substantial write-offs, among many other suffering European financial institutions too numerous to mention.

Of course the money that the US government has at its disposal, in theory anyway, consists mostly of contributions made by the many, many little people in the form of taxes. This is besides the money the government just prints — because it can. After all most of the people who make tons of money are able to hide their income (thus paying less income tax than ordinary folk) by employing lots of very clever accountants and tax consultants. Which they can afford, of course.

So we have a situation where a few have made a ton of money off the many, many little people. They face losing loads of money. They are subsequently getting bailed out by government using even more money in the form of taxes taken from the many, many little people.

Not only that; there are also many, many of these little people who were persuaded into this horrible scheme by the unscrupulous big people in the first instance. These folk are not only going to have to pay more taxes, but they are also not going to be compensated for the first part of the scheme in which they got caught up.

You see, this entire horrific toxic-asset story was all about many, many little people getting talked into fulfilling their American dream by buying a house that was totally beyond their means. They got hooked into this by being promised a few years of much lower interest rates than the market place offered, which meant they could afford the repayments initially. There was also the promise that property values would increase, thus providing an asset for them.

Then, when the normal rates were introduced after the initial period, these folk couldn’t afford the bond instalments any more. So they tried to sell their properties; after all, they had been promised that their houses would increase in value. This didn’t actually happen. In fact, the total opposite — that is, falling property values — added to their financial woes.

This meant that the many, many little people were stuck with a property they couldn’t afford and that they couldn’t sell. And the financial institutions repossessed the properties. That means, they took away the homes of the many, many little people. In case you are wondering about this, remember that the US mortgage houses Freddie and Fannie are also being bailed out by the US government.

So what is happening to these many, many little people? Are they at least also being bailed out by the US government? Nope. They have lost their homes and instead of a property they have a huge debt that they will carry around with them for the rest of their lives. And in case we forgot, they will be required to pay more taxes to make those toxic assets disappear.

Seems bizarre, doesn’t it? But then, most fairy tales are. That’s what stories are called that are beyond belief.sub