I should be working on a project due later today, but wanted to push the ranting about Congress failing to pass the bailout a little farther down on my blog list. Don’t get me wrong, it was still an incredibly stupid thing to do but with a little time and information things seem a little clearer now.
First, congrats American public – your complaining about $700 billion has had results! 1000 points shed from the stock market and the new bill is $800 billion (they kicked in an extra 100 to keep you quiet). Mission accomplished.
I’ve heard two major complaints so far – first, this is bailing out rich folks who don’t deserve it. It is true the goons who created this mess need nothing more than a subpoena, but don’t think for one minute that this bailout will effect their lively hood. The entire market could crumble and except for a few newbie MBAs most folks will recover fine either living off the large savings or quickly buying up undervalued debt to unravel and sell later.
Second complaint is that this bailout may not solve the problem. My first inclination was that the bailout would solve it by essentially socializing the risk in the market, but the more I heard and think about it – none of us should want this bailout package to solve the problem. And, by solve I mean all companies stay together, no failures, no contraction, etc.
Free markets work better than centrally controlled markets (even fueled by oil money) over the long run. In other words, the good times and wealth creation far outweigh the bad times and wealth reduction. In controlled markets, everyone except the elite are poor and miserable – but equally.
A complete solution to the current market crisis would be nationalizing markets making them centrally run. In this scenario, everyone loses. Even a solution that gets us over 60% of the way turns our markets and the companies ‘saved’ into the walking dead creating a situation similar to the lost decade in Japan.
What we need and I think this bill proposes (either knowingly or accidentally) is just enough of a solution to keep a doomsday scenario of a Great Depression, due to markets freezing up, from unfolding and in turn shoring up the market.
In one way, this mess can be attributed to a lack of information about the investments – had people including the leaders of these firms known the full risk of the investments things could have been different. But, since this information wasn’t readily available to the market (mostly investors) they allowed (and profited) the derivatives to continue until the entire bubble became out of hand.
The bailout needs to pass quickly before congress adds yet more pork that our country can’t repay. The feds need to take just enough of the bad debt to allow a controlled explosion of debt and equity markets, while allowing some liquidity to still exist. But, we need to flush out the bad viruses from the economy. It’s not easy to write, nor will it be enjoyable for the 7-10% of Americans and probably higher elsewhere to endure, but this needs to happen so we can once again see the good times.
The Internet helped rid our markets of the last funk. Here’s to hoping alternative energy does the same for this one.