[quote]Tiribulus wrote:
Mufasa wrote:
<<< the national and global consequences of doing that are far greater than some theoretical ranting on an Internet Forum.
Mufasa
Lemme say one more thing on this and again I am not claiming any textbook erudition on these subjects at all.
In my view ANY economic entity so large and entrenched that we cannot survive without it should not ever come into existence. Don’t ask me the particulars, but when some business concern is supporting our entire country to the point where failure of it equates to failure of the nation something is wrong.[/quote]
The interesting development in this bailout is that the democrats want some sort of cap or cancellation on the exit money paid to the CEOs of these trashed institutions. The republicans are defending their right to keep the bonus (got to love seeing billions paid out in performance bonuses to the people who caused this). Makes me wish I went to a better school and moved to NYC.
[quote]Mufasa wrote:
I am very anxious to hear what the nature of this “correction” would be, and its consequences on our Economy (in general terms).
[/quote]
The correction is just the point where capital and labor is freed from inefficient businesses so that more efficient businesses can take their place. The only way this can happen is through bankruptcy. If we do not allow these bankruptcies to happen there will be two negative effects: 1) inflation of the money supply through fiat money creation; and 2) a larger more devastating crash when these inefficient institutions fail yet again. Let me ask, why do we allow bad business to stay in business?
At this point taxpayers should be treated like bank stockholders; though I would be selling my stock of these shitty banks if I actually did own any.
Essentially, the taxpayers are insulating large, favored banks from competition. Competition keeps all businesses healthy and banking is not an exception. If we keep allowing bad banks to stay afloat the only thing we will be left with is bad banks. We are going to get to the point where people lose their trust and make a run on their money and then government is going to step in with their guns and kill people over their own property.
“…The correction is just the point where capital and labor is freed from inefficient businesses so that more efficient businesses can take their place…”
This happens everyday, Lift, and has happened in this case. There are Banks right now who are questioning whether or not they will be solvent or not. And some will go out of buisness.
So no disagreement there.
The problem is that AS OUR ECONOMY IS CURRENTLY SET UP (we can debate whether or not this is prudent practice or not), certain select institutions were central to the flow of money and capital. These are the ones that were “bailed out”.
As ARL brought up, are we merely delaying the inevitable?
Well…maybe…but I have to agree with McCains statement on “60 minutes” yesterday:
“You have the stop the bleeding first, then reassess…”
[quote]Mufasa wrote:
The problem is that AS OUR ECONOMY IS CURRENTLY SET UP (we can debate whether or not this is prudent practice or not), certain select institutions were central to the flow of money and capital. These are the ones that were “bailed out”.
[/quote]
Even more reason for them to dry up and go away so that a better, more healthy one can take its place. The argument that we need to keep propping up failure does not make any sense. What good does bailing them out do if they can just keep failing over and over again with no consequence.
If they fail again what are we going to do, keep paying for their mistakes or swallow the loss we already incurred and let it go? I am afraid that if we bail it out once there will always be an argument to keep bailing out because of the “we owe it to ourselves” fallacy.
The fundamental problem is that some feel that institutions should not be allowed to fail.
Airlines, transit systems (bus, train, etc), banks (lenders, etc), need to fail and not be bailed out, period.
Look at people who raise their children to never fail. They don’t function well in the real world.
In business and finances, and in general, risk has two outcomes: reward or failure.
When the government tries to artificially take risk out of life, there are huge consequences.
Economies (and government programs) are not exempt from entropy. When institutions are sheltered from small failures, they will experience large catastrophic failures. Again, look at history.
[quote]Mufasa wrote:
The Government is not running around bailing them all out.
[/quote]
Yes, the politically connected get bailed out. Is it kind of funny that Sec Paulson’s former employer not only gets bailed out but all the exec officers get a nice healthy performance bonus.
I have no idea how executive compensation is even up for debate with this bailout (ie democrats vs repubs). The executives should have their bonuses/golden parachutes snipped. End of story. They screwed up by taking on assets with a high level of risk, got burned, and now are being bailed out by the common taxpayer. No performance bonuses.
I agree with a lot of what’s been said–AIG should never have been allowed to get to the size that it was indispensable. But now that it has, it’s unacceptable for it to fail because your average person wouldn’t have been able to get a car loan, etc (according to rep. barney frank)…
When global confidence in our economy would shrivel up, that would cause even further harm to our economy as foreign investors invest somewhere safer. In this particular case, the market failed by making risky investments, and it was compounded by the repubs pushing for more deregulation so that no one knew what these businesses had invested in.
It’s a little easier to swallow knowing that the assets we’re buying aren’t worthless, and that someday they might be worth what we pay for them.
The Government is not running around bailing them all out.
Mufasa[/quote]
But those businesses apparently depend ultimately on the ones that are bailed out so what’s the difference in the end and if they don’t, then why the bailouts in the first place.