Should the government be bailing these companies out?

[Thierry Martin]

There have been a lot of comments and opinions on this, thought it would be informative to see how we stand on this. I set the poll to show who voted for what. (click on the number in the poll results to see this. There may be more votes than accounted for, this is because unregistered visitors can also vote, but they can't be identified since they don't have accounts.)

[Thierry Martin]

My view on this is that bailing out these companies just shifts the blame to people, like our kids and grandkids, that had nothing to do with the failures. Why should anyone beside those responsible pay? Now, I can understand the govenrment making secured loans, as a lender of last resort, even taking equity as long as there is legislation requiring the government to return its stake to the private sector at a future date. But wholesale givaways to companies that are not viable? It makes no sense. If the government feels this urge to invest, maybe a better investment would be to give money to companies that are doing well? When the government helps the failing companies, they are damaging those companies' competitors, and punishing them for succeeding.

I understand the need for the government to help individuals in dire straights. Government intervention in the free market is insanity. It is completely self-defeating.

[aiki14]

I am gonna go the other way from Thierry on this. I think there are circumstances where the bailouts are warranted. We do not have a totally free market economy (remember sweatshops and child labor, and stock market manipulation prior to the acts of '33 and '34), so we are ok with certain restrictions and regulations. I think the logical outgrowth of this is that occasionally the gov't has to step in in either a regulatory or economic stimulus manner to keep the wheels of the economy greased. This should in theory drip down to "main street". Whether or not any specific package actually does is debatable, but we put these politicians in place to represent all of us and we have to hope they do.

[Thierry Martin]

My understanding of the real estate mortgage fiasco is that the Bush administration encouraged and facilitated loans to sub-prime borrowers and when the wheels fell off the wagon they stuck us and our children with the bill. Seems like they did the opposite of what they were hired to do, by letting things run amok.

[concrete]

My view on this is that bailing out these companies just shifts the blame to people, like our kids and grandkids, that had nothing to do with the failures. Why should anyone beside those responsible pay? Now, I can understand the govenrment making secured loans, as a lender of last resort, even taking equity as long as there is legislation requiring the government to return its stake to the private sector at a future date. But wholesale givaways to companies that are not viable? It makes no sense. If the government feels this urge to invest, maybe a better investment would be to give money to companies that are doing well? When the government helps the failing companies, they are damaging those companies' competitors, and punishing them for succeeding.

I understand the need for the government to help individuals in dire straights. Government intervention in the free market is insanity. It is completely self-defeating.

^ This is exactly the point that should be at the end of every question the media asks anyone in Washington, every second of every day.

The press is the citizen's army, and they're not doing their jobs. We're too busy keeping up with our bills and lives to keep up with all the back-room closed door shenanigans that keep going on, and by the time we figure it out on our own, it will be too late.

My kingdom for an aggressively pro-citizen news agency.

[madcowdisease]

I am gonna go the other way from Thierry on this. I think there are circumstances where the bailouts are warranted. We do not have a totally free market economy (remember sweatshops and child labor, and stock market manipulation prior to the acts of '33 and '34), so we are ok with certain restrictions and regulations. I think the logical outgrowth of this is that occasionally the gov't has to step in in either a regulatory or economic stimulus manner to keep the wheels of the economy greased. This should in theory drip down to "main street". Whether or not any specific package actually does is debatable, but we put these politicians in place to represent all of us and we have to hope they do.

Nice dose of Keynsian theory.

I too am all for lending a hand to a company for the sake of preserving and industry and saving jobs. However, I am also in favor of justice.

I made mention in other threads that I am contra most of the pupulace in my opinion we ought to save the automobile manufacturers but let the banks fail. As I said in those threads, I view the autos as what they refer to civilian casualties in the military: collateral damage.

I will admit Detroit was losing its leading position in the auto industry in part to more competitors (koreans and chinese) as well as cheaper labor abroad. However, these companies were still viable. The nail in the coffin was the freezing of the credit markets and the fact no one can get financing including these companies. Yet our government, actually it's the Fed (which is anything but federal) and the treasury, are bailing out whatever financial firm so much as sneezes but we are going to let the only value added manufacturing industry left in this country die. Way to think it through America.

We now have these massive financial institutions which are burdened by toxic debt being propped up by the government with its implicit guarantee. But what is backing the government? Our per annum GDP is ~$1 trillion in this country and we run a budget deficit in the $500 billion range. So the difference between what our government spends and what it brings in in taxes is almost half of all the goods and services produced in this country. We're now talking about a budget deficit of $1 trillion next year with all these bailouts and this is not to mention the $2 trillion the Fed and Treasury sent out the back door. How are we paying for this? We're not, it is simply being printed which is akin to issuing more shares in a secondary offering. Printing more money is simply diluting the purchsing power of the existing dollars.

So here we are, on the verge of hyperinflation and we are issuing more and more debt. Isn't debt at the root cause of all this? The fact this country didn't produce jack squat but a few Hollywood movies is why we find ourselves on the brink of financial armageddon and going back to the bartering system.

I feel we should let the financial institutions fail. The strong will survive and new ones with a moral code of ethics will emerge and fill the void. Purge the system of the credit. Let deflation set in. At least the measure of our labor -- the dollar -- will finally purchase something rather than every one of us having to be more and more productive just to maintain the status quo. Instead we are running the printing presses at the Treasury 24 hours a day and in a couple years will be facing inflation that makes us wish we were back in "glory days" of the 1970s.

Fasten your seatbelts. We're going down.

[BuyOnDips]

Sometimes doing nothing is the best action. It's almost always true when the government is involved.

Here's a couple of very good links to economic blogs. Very good reading.

http://calculatedrisk.blogspot.com/

http://paul.kedrosky.com/

http://optionarmageddon.ml-implode.com/

http://www.bloggingstocks.com/

Here's a sad story about some of the employees from Lehman Brothers.
http://www.myfoxny.com/myfox/pages/Home/Detail;jsessionid=65994F1346C27DAA93423E9EE33541A3 ?contentId=7939247&version=1&locale=EN-US&layoutCode=VSTY&pageId=1.1.1&sflg=1

[seataka]

Hello,

this is my first post to this forum

I have a lawyer, works in Washington DC, who has been CMA for 15 years, he is friend of family.

I asked him to explain the housing loan derivative mess to me. 2 hours later I stopped him, and I said, "Dave, let me get this straight.. you mean there isn't enough money in circulation, even if you counted all the the currencies in the world to fix this screw up? He said, yeah... the losses are not just the loan derivatives, but those packages of loans were insured against losses..."

The bailouts, despite the showmanship and Carl Sagan-esque numbers..are as if you totaled your car, going over a cliff,(and you are dead) and somebody put a band-aid on a piece of your winshield that was cracked but hadn't flown off...and then turned to onlookers and said, there, "Pfffft.. he is fixed"

"Pfffft.. he is fixed" works for children playing cowboy and outlaws (im part native american) not fantasy derivative economics.

The recent ponzi schemes...in the news.. - guys IMO you ain't seen nothing yet, it is way worse than anyone is letting on and no one knows what to do. Think Enron over and over again...Cause there is not enough money in the world to fix this screw up...

"hang onto your hats it's gonna be a hell of a ride"

Seataka

[freakscene]

My understanding of the real estate mortgage fiasco is that the Bush administration encouraged and facilitated loans to sub-prime borrowers and when the wheels fell off the wagon they stuck us and our children with the bill. Seems like they did the opposite of what they were hired to do, by letting things run amok.


Not exactly Thierry.

You got the administration wrong.

The administration that you want to blame is the Clinton Administration, which expanded the programs to force banks to make loans to people they otherwise would not have.

[freakscene]

The recent ponzi schemes...in the news.. - guys IMO you ain't seen nothing yet, it is way worse than anyone is letting on and no one knows what to do. Think Enron over and over again...Cause there is not enough money in the world to fix this screw up...

Seataka


You are correct.

[freakscene]

Thierry

If you have a few minutes, this is a wonderful, condensed version, with data, that explains the blame few others are willing to discuss in the media

http://www.youtube.com/watch?v=1RZVw3no2A4&annotation_id=annotation_918789&feature=iv

edit

http://www.youtube.com/watch?v=Z5z9lD4C2Io&annotation_id=annotation_406054&feature=iv

[seataka]

LONG but concise article by a couple of Professors at Monthly Review.Org (http://monthlyreview.org/081201foster-magdoff.php)


But capitalism takes advantage of social inertia, using its power to rob outright when it can’t simply rely on “normal” exploitation. Without a revolt from below the burden will simply be imposed on those at the bottom. All of this requires a mass social and economic upsurge, such as in the latter half of the 1930s, including the revival of unions and mass social movements of all kinds—using the power for change granted to the people in the Constitution; even going so far as to threaten the current duopoly of the two-party system.

What should such a radical movement from below, if it were to emerge, seek to do under these circumstances? Here we hesitate to say, not because there is any lack of needed actions to take, but because a radicalized political movement determined to sweep away decades of exploitation, waste, and irrationality will, if it surfaces, be like a raging storm, opening whole new vistas for change. Anything we suggest at this point runs the double risk of appearing far too radical now and far too timid later on.

[freakscene]

A very well written column in the WSJ that one would have hoped was only a joke, but isn't.

'Atlas Shrugged': From Fiction to Fact in 52 Years

http://online.wsj.com/article/SB123146363567166677.html?mod=googlenews_wsj

Some years ago when I worked at the libertarian Cato Institute, we used to label any new hire who had not yet read "Atlas Shrugged" a "virgin." Being conversant in Ayn Rand's classic novel about the economic carnage caused by big government run amok was practically a job requirement. If only "Atlas" were required reading for every member of Congress and political appointee in the Obama administration. I'm confident that we'd get out of the current financial mess a lot faster.


Many of us who know Rand's work have noticed that with each passing week, and with each successive bailout plan and economic-stimulus scheme out of Washington, our current politicians are committing the very acts of economic lunacy that "Atlas Shrugged" parodied in 1957, when this 1,000-page novel was first published and became an instant hit.


For the uninitiated, the moral of the story is simply this: Politicians invariably respond to crises -- that in most cases they themselves created -- by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs . . . and the downward spiral repeats itself until the productive sectors of the economy collapse under the collective weight of taxes and other burdens imposed in the name of fairness, equality and do-goodism.


In the book, these relentless wealth redistributionists and their programs are disparaged as "the looters and their laws." Every new act of government futility and stupidity carries with it a benevolent-sounding title. These include the "Anti-Greed Act" to redistribute income (sounds like Charlie Rangel's promises soak-the-rich tax bill) and the "Equalization of Opportunity Act" to prevent people from starting more than one business (to give other people a chance). My personal favorite, the "Anti Dog-Eat-Dog Act," aims to restrict cut-throat competition between firms and thus slow the wave of business bankruptcies. Why didn't Hank Paulson think of that?

These acts and edicts sound farcical, yes, but no more so than the actual events in Washington, circa 2008. We already have been served up the $700 billion "Emergency Economic Stabilization Act" and the "Auto Industry Financing and Restructuring Act." Now that Barack Obama is in town, he will soon sign into law with great urgency the "American Recovery and Reinvestment Plan." This latest Hail Mary pass will increase the federal budget (which has already expanded by $1.5 trillion in eight years under George Bush) by an additional $1 trillion -- in roughly his first 100 days in office.


read the rest yourself, or even better, read the book