This Broken Bailout of Ours

Hallelujah!

Voted down, and a damn good thing too. This is a prime example for the reason why I picked the name I did for my blog.

Here's the root of the problem. Bad economic decisions in our modern banking industry (I refuse to call them "institutions" like the media seems to love doing - they are not "institutions" that we must simply keep afloat. They're businesses.) stretch back to at least the 1970's where the savings & loans started to go under. Laws passed in 1980 apparently made it acceptable for them to be increasingly loose with their money, and in the following decade we had a savings & loan meltdown. Lets notice the trend starting here: government got involved in business, and the market failed. In 1989, the government formed the Resolution Trust Corporation to help these companies get rid of their "toxic" investments, and a significant portion of this was funded with taxpayer dollars. Notice anything similar about what's happening today?

So the real meat of the problem here is that these companies feel safer since the door has been thrown wide open for government bailouts of bad financial decisions. The very same people who made these bad decisions are screaming for the bailout to happen, to avoid an economic "meltdown". Yeah, sure, let's bail you out so you can run away with your golden parachute. The man who took over as CEO for WaMu recently worked a whole 17 days before the company failed, and he received a $20 million payment. Let's not forget Stanley O'Neal, the former Merill Lynch CEO until 2007, left with $161 million.

The logic simply fails. These companies, whose business it was to loan money and make money on those investments, failed. They made bad investments, and now they're in financial trouble. The argument for the bailout is that the people of this country and their businesses won't be able to get home loans, car loans, student loans, business loans, because the institutions that loan money don't know how much they can loan. . . So we need to give them taxpayer money so that they can loan more money. They're in trouble because they made bad decisions about loaning money; we don't need to give them money from taxpayers so that they can continue their failing business.

Despite modern indications, we live in a Capitalist society, folks. The government is attempting to apply a Socialist solution to a Capitalist system.

Here's a hint: the free market fixes itself, and when the government gets involved in business, bad things happen.

Let me paint for you the true Capitalist, free-market scenario. These financial businesses fail (in part, at least, because of underhanded lending techniques. That's a totally separate matter). They get picked apart by the other companies who want to create or expand their financial influence. The assets of the failed companies get bought by people looking to make money on their failure to do so. If the government steps in at all, it should be to reduce or eliminate taxes on the income made from these "dangerous" investments to increase the speed that these assets get bought.

Not all of it is a bright, sunshiney picture. The stock market takes a dip, because some of its pillars have crumbled, but the pillars are being remade even as they crumble. The people who made silly purchases of homes or cars or what have you... I'm sorry, but have a little personal responsibility for your actions. You either didn't read the fine print on your loan contracts, or you didn't understand it. So, these people are in trouble. If the company that buys their bad loan has a good heart, they can restructure the loan to have a more sane interest rate, and probably decrease the overall amount owed, in order to keep these debtors in their car/home whatever they bought, and attempt to have a positive cash flow from the original people who made the loan. Failing that, or if the company is a little more cut throat, they'll evict the person or repossess the property, and attempt to sell it to someone else to recoup the money on their investment on these "bad" loans.

In the end, some people lose their property due to making a bad decision about which company and what loan, some people get a break and get to keep it... Some companies go under, some companies get bigger. The market and the economy has a little healthy turmoil, and then things normalize and stabilize. And we go back to living life, just like we always have.

... I seem to have run out of words. In closing, the government should get its big nose out of the market and the market will take care of itself. In the future, the people of this great nation and the businesses in it will be a lot more careful how they treat loans. We go through a short time of economnic difficulty, and then things normalize. The free market system works - you just have to leave it alone and let it. It has for the past 200 years, with various government induced hiccups.