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Thursday, September 25, 2008

Road To Nowhere

By Silvia Uribe


The story on what's happening with the U.S. economy is obviously more than what meets the eye. There are many things that we, as regular people, will never know about, and thus, we won't understand. However, one thing is very clear. The government has placed us all in a precarious situation and on a road to nowhere, just like the one that Sarah Palin is building in Gravina, Alaska.

All the financial institutions that hold both national and international interests are crumbling like overcooked cakes, and there's no way to cover the situation with any kind of sweet frosting. But our government still needs to hold the burned areas in place. Otherwise these will taint - even more - our relations with the rest of the world. It could be a complete debacle!

In order to do this, the government will have to bail out monstrous financial institutions with the unprecedented amount of $ 700,000,000,000 (did I put enough zeros?), which is a measure that, although I understand that doing nothing is not an option, it is still frightening to me.

You see, I've seen this kind of situation happening before in the Mexican economy. A corrupt government puts the country at risk, and pretends that nothing bad is happening (as Bush did up until a few weeks ago when he kept saying that we were in no financial recession, but in a "slow economy"). Then, I've seen the same government being forced to solve the problems it caused by acquiring financial responsibilities that, in the long run, brings the country to impossible debts, both private and public. Things then were very similar to what has been going on here: the real estate market went downhill; people were loosing their homes. Sounds familiar?

The FOBAPROA (Fondo Bancario de Protección al Ahorro or "Banking Fund for the Protection of Savings") was a controversial fund created in México in 1990 by Carlos Salinas de Gortari in an attempt to "resolve" liquidity problems of the banking system in Mexico. The Fobaproa was applied in 1994 during the economic crisis to protect Mexican banks from going bankrupt, and thus destroying the Mexican Economy. During that decade, the peso went through an unprecedented devaluation, interest rates went through the ceiling, the economy was stagnant, and the country suffered a masive descapitalization due to lack of trust in the financial system. Talk about a debacle!

By July, 1998 the Treasury (Secretaría de Hacienda y Crédito Público) gave the green light for Congress to analyze the Fobaproa books to clarify fraud accusations made public against top rank individuals within the government, entrepreneurs, and bankers. With the Fobaproa, the population felt some relief with their debts, however the financial meltdown of the country was unquestionable, and its consequences unparallel. It was not until September of 1998 that President Ernesto Zedillo created a reform for the financial system. This reform included more efficient mechanisms for the overview of the credit activity, a new legal frame that would avoid new financial crises, support for small and medium debtors, and equity in the distribution of the rescue costs. It also included measures to avoid corruption.

Bush's administration is asking now for $700 billion, and the proposal places no restrictions on the administration other than requiring semiannual reports to Congress, granting the Treasury Secretary unprecedented power to buy and resell mortgage debt. I don't think so. Corruption is an illness that's usually caused by opportunity. It will be up to Congress to determine what kind of severance package Bush will have at the end of his term.

Also concerning, is that our presidential candidates keep campaigning as if nothing is happening. Shouldn't they be an intrinsic part of this decision making process, as opposed to be bickering at each other? Given the fact that one of them will - whether we like it or not - be the next President in a few months, isn't it in everyone's best interest that both of them take part in planning a solution to this mess. After all, one of them will have to run with this snowball in his hands, won't he? Oh, but wait. If the candidates would do this, they could be held accountable for their decisions. Sorry, I forgot that neither of them really wants that.

I'm no analyst, but I'm a person who doesn't forget history - one who has "been there, done that". And yes, I am just frightened by the negative consequences that can be foreseen.

Silvia Uribe is a freelance writer with a Latino perspective.

Cross-posted at

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