Is Our Government Too Big To Fail?

October 29, 2009:

We have spent the last twelve months as a country debating the question, “Are there companies that are too big to fail?”  I think we have clearly answered that question with a resounding “NO!”  Yet look at how we respond to the crisis by wanting or allowing the government to expand.  Once again, we are creating a whole new set of problems that could impact us for decades to come.  So let me understand… the government now wants to participate in healthcare insurance.

This is the same government that handles Social Security.  By the way, Social Security announced last week that there would be no cost of living increase and that for the past two months, it paid out more than it took in.  Too big to fail?

Of course, let’s not forget the housing crisis.  Remember Fannie Mae and Freddie Mac which the government was involved in?  Guess what?  The Federal Housing Administration (FHA), the governmental agency that makes affordable mortgages, is now showing signs of weakness and may need a governmental bailout.  How much you ask?  Who really knows?  We were told in July 2008, that the bailout cost for Fannie Mae and Freddie Mac was estimated at $25 billion.  So far the cost has exceeded $400 billion.  Too big to fail?

While we continue to see the closing of banks, is anyone highlighting the current condition of the FDIC, Federal Deposit Insurance Corporation?  The FDIC, having handled the protection of assets of all these banks that have closed, is in its own right essentially broke.  Will we have to bailout this government institution as well?  One FDIC spokes person proposed looking at the option of taking premium prepayments to try and shore up its own books.  Could it be that the banking system, which is experiencing its own erosion of capital due to bad loans and foreclosures, could possibly see its capital tapped by the FDIC to pay for… you guessed it… the erosion of capital in the banking system.  Too big to fail?

Medicaid and Medicare have major issues.  The Postal Service has been bleeding red for some time.  And now, the government wants to get into healthcare coverage.

All these debates and circumstances will eventually come to a point where the ending results will restrict businesses from expanding or making decisions for numerous reasons.  Whether viewing the stock market on a day to day basis or over the next year, there is no doubt that risk is high and market corrections are highly probable.  Too much uncertainty is out there whether you are focused on unstable government entities, a hot bed of geopolitical issues, or the next leg down of foreclosures in the real estate crisis.  We are wanting to be so optimistic about our future.  Yet the dangers are so real and we are becoming part of a smaller group that is trying to voice concern.  We stand convinced that we will see a double dip recession and we want our clients to win in this downturn.

Greg Powell
President and CEO
Fi Plan Partners

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