Bailout Plan or Rescue Package??
September 25, 2008
While I would much prefer whatever legislation our government is on the verge on enacting be called a bailout plan rather than a rescue package, I think it’s pretty obvious that the bottom line is that something needs to be done.
Initially, I really wanted our government to do nothing and let capitalism stand true to itself - why should Americans pool our money together to cover a bet that we, as a country, didn’t make?? The market has enjoyed a very nice bull run, a recession - almost like a cleansing of the system - is healthy (if not necessary).
But there were events that unfolded last week that made me think twice about my decision to let things run. Things were starting to spill over into the board economy and it really started to look like we were starting to gain momentum towards a downward spiral. At the end, I do think that action by the government is necessary. But there are a few things of concern I should point out about this package.
1. I’m afraid that this won’t change the ways Americans live (more importantly, spend).
Even though we’re a good solid year in this mess, I still think that the media is portraying this as “greedy wall street took a gamble and got burned” scenario (which, to an extent, is true) and not as much as a “this is what happens when you spend $1.05 for every $1.00 you earn” situation (which is the other half of the story). For years, Americans have had a negative savings rate, we spend more than we save, import more than we export, consume more than we produce… because that’s the American way. This is indicative in the way household live, this is indicative in the way corporations leverage their business, and this is indicative in the way our government spends its money. So much of our economy is based on credit, if we continue down this path, it’ll only be a few years before we’re right here again.
2. I’m terribly afraid that the government will overpay for the toxic crap they’re about to buy.
Let’s face it, our financial system (if not our country) is run by Goldman Sachs. I can easily see a how a few people of influence can sway the government to pay a little extra to get this crap. I would really like to see some sort of mechanism where they can use the market to find a fair price for these things.
3. I think there’s a notion that this is getting marketed as an “investment opportunity” for the US.
Sure, the government can make money off of these debts - and sure, no one wants to lose their house. But the bottom line is, when you’ve bought a house that you can’t afford, you are going to lose your house. So just like any investment, there is a chance that this won’t work. Hank Paulson asked congress for the bazooka with the logic that if they know you have a bazooka in your pocket you won’t have to take it out. A few weeks later, not only did Paulson take it out and fired it - it didn’t work. We should also be prepared that this may not solve the issue (especially in the long run).
4. If the government does end up making money on this plan, I doubt you and I will see the pay off.
Let’s say that this whole thing works out, the government make money off of this. I am almost certain that the people won’t see much of the profit with the track record of the way our government spends our money. This is really a moot point now, but I’d really like to see a Presidential candidate who is going to make a priority to cut spending (as opposed to simply promising to cut taxes). I’m afraid that this is just going to give uncle sam a bigger bat to swing and we’ll be right back here again a few years later.
Hopefully this thing will get passed this weekend. Since it’s the end of the quarter coming up, it’s going to be NASTY if this thing don’t get passed by then.
Posted in News/Events
