Nationalized Banks

February 20th, 2009 9:51 pm

Dodd Says Short-Term Bank Takeovers May Be Necessary

By Alison Vekshin

Feb. 20 (Bloomberg) -- Senate Banking Committee Chairman Christopher Dodd said banks may have to be nationalized for "a short time" to help lenders such as Citigroup Inc. and Bank of America Corp. survive the worst economic slump in 75 years.

"I don't welcome that at all, but I could see how it's possible it may happen," Dodd said today on Bloomberg Television's "Political Capital with Al Hunt" to be broadcast this weekend. "I'm concerned that we may end up having to do that, at least for a short time."

"I'm sort of stunned in a way that some people are reacting the way they are about all of this," Dodd said. "At a time like this, everyone needs to pull in the same direction."

Stunned? Did he actually say that? I mean I can almost hear outrage in his voice! "Everyone needs to pull in the same direction."

Talk about psychological BS. I am STUNNED that he said that! As many of you know, those of us with an ounce of sense, whenever the government takes "for a short time" what that really mean is, "now that we have it, there's no way to go without it." Look at income tax! Remember hearing from your old grandfathers that back in those days, the government swayed the fears of the nation about taxing incomes with the desperate plea for people to be patriotic and let the government use the money to win a war. What good American would turn their backs on that? So incomes were taxed and we had victory. But the govn't got used to that money so it stayed. For a short time, my backside!

"Driven by the war and largely funded by the new income tax, by 1917 the Federal budget was almost equal to the total budget for all the years between 1791 and 1916. Needing still more tax revenue, the War Revenue Act of 1917 lowered exemptions and greatly increased tax rates. In 1916, a taxpayer needed $1.5 million in taxable income to face a 15 percent rate. By 1917 a taxpayer with only $40,000 faced a 16 percent rate and the individual with $1.5 million faced a tax rate of 67 percent.

The economy boomed during the 1920s and increasing revenues from the income tax followed. This allowed Congress to cut taxes five times, ultimately returning the bottom tax rate to 1 percent and the top rate down to 25 percent and reducing the Federal tax burden as a share of GDP to 13 percent. As tax rates and tax collections declined, the economy was strengthened further.

In October of 1929 the stock market crash marked the beginning of the Great Depression. As the economy shrank, government receipts also fell. In 1932, the Federal government collected only $1.9 billion, compared to $6.6 billion in 1920. In the face of rising budget deficits which reached $2.7 billion in 1931, Congress followed the prevailing economic wisdom at the time and passed the Tax Act of 1932 which dramatically increased tax rates once again. This was followed by another tax increase in 1936 that further improved the government's finances while further weakening the economy. By 1936 the lowest tax rate had reached 4 percent and the top rate was up to 79 percent. In 1939, Congress systematically codified the tax laws so that all subsequent tax legislation until 1954 amended this basic code. The combination of a shrunken economy and the repeated tax increases raised the Federal government's tax burden to 6.8 percent of GDP by 1940."

US Treasury, Fact Sheet on History of the Tax System.

Alison Vekshin's article continues:

"Dodd endorsed the $275 billion housing plan Obama unveiled this week, which is aimed at keeping as many as 9 million borrowers from losing their homes. He acknowledged the "moral hazard" of helping borrowers who made bad decisions, and said relief is needed because foreclosures drive down home values in neighborhoods.

Obama's plan includes $75 billion for financial incentives to the industry and interest rate subsidies to cut monthly loan payments and make them more affordable for struggling homeowners. It also expands the role of government-run mortgage giants Fannie Mae and Freddie Mac to keep mortgage rates low and refinance loans when the owner owes more than 80 percent of the home's value. "

It makes me wonder if I was stupid to keep making my mortgage payments on time, never missing a month. No matter what, I made that payment! So now, I wonder if I should just skip a few, get behind and see if this Obama plan will bail me out. I could use that mortgage money over the next 3 months and pay off all my credit card bills and be debt-free, then start making that new lower payment that this plan promises to give us struggling homeowners. Actually, it's starting to look kinda smart to do that. Just think of the bills I could pay off if I didn't make that house payment. It would only take missing a few and I would have no bills. I wonder!