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About that bailout

I’m no economist, but I couldn’t believe it when George W. Bush said “The market isn’t behaving properly.” It seems to me it’s behaving exactly the way it should behave under the circumstances.

It’s the same thing with the economy, which has been subjected to years of short-sighted and reckless mismanagement by the Bush administration as it racks up unfathomable debt in the pursuit of foolish and expensive priorities such as perpetual, unwinnable wars.

Spending way more than you have is unsustainable at the household level and it’s unsustainable at the national level. What’s equally unsustainable is artificially bailing it out when it does what it must naturally do. Self-correction is the market’s safety valve. If it isn’t permitted to self-correct, it’s doomed.

Bailing it out also prevents anybody -especially those making critical decisions – from experiencing the consequences of bad decision-making. One of those consequences should be improved decision-making in the future as people learn from their mistakes. What do they learn if colossal failure is rewarded with colossal bailouts?

Like I said, I’m no economist and maybe I’m dead wrong. This bailout just seems like throwing good money after bad. Or paying your student loan with your credit card. Or throwing water on a grease fire. Or sticking your head in the sand. Or cutting off your nose to spite your face. You know what I mean?

14 comments to About that bailout

  • Check out the way sweden dealt with the same crisis in the early 90’s – it worked well help people accountable and the state has recouped more than 85% of what it put into its plan to save their financial sector and they’re still getting it back in dribs and drabs.

  • This is exactly how I feel also. Problem is, it is rarely the people who make the bad decisions that have to live with the consequences…

  • …the bailout is actually the government buying the assets of these companies at a low cost. The government then holds onto the assets until their worth rebounds, at which point the government sells them back to the private sector. It’s exactly what the American government did after the Savings & Loan meltdown, and after selling those assets the US government actually made a profit.

    http://en.wikipedia.org/wiki/Savings_and_Loan_crisis

    The recent collapse of Investment Banking actually mirrors quite closely the S&L events, as the S&L’s were all about real estate investing and speculation.

  • Judi

    My understanding is the same as Gabriel’s, but I really really want to see someone (lots of someones) go to jail.

  • You’re pretty smart zoom!

  • The FBI have already started investigating the major players ie: Fannie Mae, Freddie Mac, Lehman Brothers, and American International Group (AIG). According to CNN they’re looking directly at 26 “corporate lenders” to start.

  • Milo

    What I don’t understand is why it is so difficult to find an explanation of “bailout”. What is it, who benefits, and who is hurt if it doesn’t happen? Not all voting Americans have a 30-second attention span. WHERE IS THE THIRD ESTATE?

  • Melinda

    Gabriel’s right. Plus, if the bail out doesn’t go through, the effects will ultimately be wider spread and even more devastating since you’ll have businesses go under and a lot more people will be out of jobs etc. It’s kind of like saying, Hey, big retailers are evil, let’s ban Wallmart starting tomorrow. That would leave a huge hole in the economy what with job losses in the stores, suppliers would crash, as would middlemen of all sorts. Then there are those who sell things to the suppliers and middlemen who would lose business and have to fire people, etc. Yes, the hole would refill eventually, but the immediate effects would be devastating.

    Like Judi said, I’d like to see lots of someone’s go to jail, but it would have to be the congressmen who allowed the change in the laws which in turn allowed the FMs to do what they did. You can’t bust someone for using congress’s loopholes to act immorally and make a quick buck. They didn’t break any laws, even if they were out of line.

  • XUP

    When I say something sensible like what you said, financial types always look down their noses at me and say I can’t compare household finances with national economy. Apparantly they know what they’re doing and it’s way, way beyond our scope of understanding. We should sit quietly somewhere and knit and let the grown-ups sort it all out.

  • Nik

    One of the ironies of this entire situation is that Conservatives and Republicans typically argue that you shouldn’t give welfare to the poor, because it will only encourage them to stay poor, thus creating a “welfare state”. It’s depressing that these same idiots seem to have no qualms bailing out massive corporations when they fuck up.

    In the end, they’re willing to help BIG MONEY, but they’re not willing to help little people.

  • The problem with the bailout as it stands now is that the conditions, and even the actual cost, have yet to be determined. The general idea fits with what Gabriel et al say, but they’ve yet to actually decide on the conditions that will go along with the money (hence all the chaos in DC). All I can say is I sincerely hope they make sure that the bailout money does not go towards paying those CEOs their ludicrous salaries and bonuses.

  • This entire situation was caused as much by household economics and personal greed as it was by national economics or corporate greed. This is what happens when a Trillion dollars of household debt comes due all at the same time, and the people who owe the money can’t pay it off. All of the company’s who had those mortgages as assets suddenly have all of those assets turn into liabilities.

    As much as the investment banks are responsible for selling the “sub prime” mortgages, someone had to buy those mortgages. Some random Joe or Jane America had to walk into an office and say yes to a no money down house purchase and ignore the clause saying in two years the bank was going to jump their payments from a few dollars a month to a few hundred dollars, and their interest rate from barely-there to 20% or 36%.

    The only way Joe or Jane could afford the house was if they could sell it / flip it two or five years later. And it worked for a little while (remember all those tutorials on how to flip a house on TLC and A&E?)… but the new houses coming onto the market made the old houses obsolete. And then, when the new/old houses couldn’t be flipped anymore and all those mortgages came due, suddenly there was a Trillion dollar hole in the American economy.

    What the FBI will be looking at is if the investment banks kept selling those no-money-down mortgages even though they knew at some point the people buying them would have to go into bankruptcy because they couldn’t afford the house and they couldn’t sell it.

    The problem in assigning fault or intent is going to be all of those signatures on all of those mortgages.

  • Hey XUP checvk out Sweden’s solution – seriously it was like good credit counselling for the big guys!

  • Thanks for the comments – I’m still chewing on them and trying to wrap my head around the whole thing. But you’re helping educate me, which is always a good thing. :)