Monday, December 22, 2008

Bailouts, Capitalism and the Economy

Update: Oddly appropriate CNN article

Part one of a three part series.

I'm so tired of hearing these words as they come buzzing out of the mouths of every pundit, journalist and politician that I'm pretty sure they cause me physical illness. It wasn't the bbq nachos after all.

Yet, I haven't clearly stated my case on all of these issues, so here goes just in time for Christmas. I got you something after all.

Bailouts are a gigantic waste of our money.

I think this is obvious to everyone but the slimy politicians who vote for them because they can't stand to see their buddies lose their million dollar homes in West Palm.

If a financial institution isn't making money and isn't smart enough to put reserves away for times of trouble and acted fiscally irresponsible by giving out 110% loans to waiters for million dollar homes in the middle of crack riddled neighborhoods, then what makes you think they'll be smart enough to change their ways and be able to pay all of that money back?

Delaying the inevitable and pissing away billions of dollars all at the same time. This is what our politicians are good for.

The argument was that if they didn't set up this slush fund for banks to draw from, then credit would seize up and suddenly you won't be able to buy anything. Stores wouldn't be stocked with plasma TVs and we'd all die or something like that.

All of it, bullshit. Yes, companies that don't deserve to exist because they lose tons of money on a monthly basis and rely on an ever flowing line of credit to survive would shut down. But companies that operate the way their supposed to, i.e. make more money then they spend, would survive just fine. There may be a small short term cash flow squeeze, but they would get by.

And I'm sorry, but are you telling me that someone, some bank or some country wouldn't recognize an opportunity to loan a bunch of money because everyone else is frozen and come in and offer some credit? Bah.

The truth is that politicians and fat cat bankers are so tied into each other that they can't afford to see each other fail.

There are several reasons why they government acted so quickly to bail out Wall Street.

1. 700 Billion dollars is not that much to politicians. Three weeks before they passed the bailout legislation they passed a 630 Billion dollar spending bill that would finance the government between Oct. 1, 2008 - Sept 1, 2009. Or at leas part of that time. I believe it actually only represents 60% of the money that will be spent during that time, so really from Oct. 1, 2008 - June 1, 2009. What's another 700 billion when you already owe trillions?

2. Too many other countries own stakes in these banks and financial institutions to let them fail. This would mean that they'd be really pissed at us and could stop loaning us money.

3. Politician's best friends are wealthy people who don't want to see their money go up in
smoke. People with $100,000 or less were protected by the FDIC and probably weren't calling up the politicians complaining. But I guarantee you the wealthy people they see at cocktail dinners and fundraisers were calling like crazy. Most of the politicians themselves would have probably seen significant losses if they had let them fail.

I know, conspiracy theory. Let me ask you what's the difference between an auto industry bailout and a bailout of AIG? Why was saving AIG, Lehman and other's so damn important that we had the President begging for money on a daily basis while it's ok to publicly humiliate auto makers who are asking for 1/10th of the amount of money? Friends in high places make all of the difference.

For the record, I'm opposed to bailing out the automakers as well, but I think it's unfair the way they were treated in comparison with the free pass we gave Wall Street.

The impacts from not bailing out everyone would have been bad, no doubt. However, there were alternatives that were much better and would have dealt with the underlying fiscal problems instead of placing a band aid on the gunshot wound.

If you think this was the last bailout, you're wrong. This was just the first.
That took longer than I thought. I guess Capitalism will be next time.

Merry Christmas!

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