I Think We Just Got Mugged

I doubt I'm the only one who feels like we've been had. Treasury Secretary Henry Paulson's recent comments about his shifting strategy for tackling the financial crisis have made many people wonder whether they're being robbed blind -- and, adding insult to injury, whether the perps are kind of clueless, too.

Quick -- everybody under the TARP!
AIG (NYSE: AIG  ) needs a bailout from its bailout. American Express (NYSE: AXP  ) has become a bank holding company just to get its hands on some TARP money. General Electric (NYSE: GE  ) is getting in on the help, too. Bank of America (NYSE: BAC  ) is still paying a dividend, despite taking government funding. Banks are acquiring one another with government assistance. And if these supposedly suffering companies still pay their executives massive bonuses while on the government dole, there's gonna be one hell of an uproar. So tell us again how this is all working according to plan?

As if that weren't enough, I saw an Associated Press article about how if General Motors (NYSE: GM  ) , Ford (NYSE: F  ) , and Chrysler fail, a "catastrophe" lies in our financial future. (What about another catastrophe: We fail like Japan?)

Keep your pepper spray handy, Fools. I'm beginning to think that whenever anyone shouts "emergency," that shady, high-paid dude in the pricey suit and silk tie is getting ready to jump us.

The real tragedy: We're getting drained
Paulson, Ben Bernanke, and George "This Sucker Could Go Down" Bush told us that we needed the big bailout package, and pronto, to avoid financial Armageddon. When the House failed to pass the package on its first go-round, you might have thought Congress cared about constituents' opinions for once -- until they passed a second, sweetened version with a bunch of staggeringly dumb earmarks attached. It was hardly comforting to see that in times of supposedly grave crisis, these guys and gals were still looking out for their favorite special interests.

The result of Paulson and friends' shock-tactic tidings was a collective (and mercifully metaphorical) pants-soiling the likes of which I've never seen. But once Paulson got the go-ahead on the money, it seemed that banks proceeded to act as if getting that money was the solution in itself. So, wait, it was an emergency, but not that much of an emergency?

Lending really hasn't thawed much, despite the Treasury's actions thus far. And now Paulson says he's changed his mind about how to best use the Troubled Asset Relief Program, or TARP. Now he wants those billions to stimulate consumers, who are apparently in great need of credit for credit cards, student loans, and auto loans.

News flash
Excuse me while I get out the megaphone here: HELLO? TOO MUCH BAD DEBT IS PART OF THE PROBLEM ALREADY! Ahem.

It's our economy's dirty little secret: Consumers are already terribly overextended from all the bad and irresponsibly obtained debt that caused this problem in the first place. During the run-up to this mess, many companies expanded precisely because they were capitalizing on the free-floating, woefully artificial sense of "net worth" and "income" created by rising housing prices. (Said companies were gorging on the easy-credit gravy train, too). We've got to work these excesses out of our financial system, not add more of them.

The increasing sense that Paulson and our government officials are making this up as they go along -- and haphazardly slapping bandages on gaping wounds, while blindfolded -- is hardly comforting.  

I'm further alarmed at the terrible precedents this bailout is setting. It's rewarding failure, punishing responsible parties, and promoting even more reckless spending, since there seem to be no consequences anymore. (Apparently, we can't afford consequences right now.) Don't get me started on how bailing out "homeowners" who can't afford their mortgages is not only economic crazy talk, but also implies that responsible people were the really big suckers. And who's footing the bill for all the money flowing right to the rotten players who wrecked our faith in the system? The middle class.

Robin Hood's evil twin is alive and well
I remain opposed to bailouts that I believe will sucker-punch us in the end. I'm a fan of merit and accountability, sink or swim. The stupid, irresponsible actions that have so damaged our economy have no connection to what makes capitalism great: rewarding success and letting failure flame out. By ignoring those tenets, the Treasury's current bailout strategy puts us on a very treacherous road indeed.

Our government seems determined to coercively take our cash, reduce our buying power, and indebt our grandchildren -- some sources say the actual government tab could be as much as $5 trillion. Frankly, I think we need to remind the powers that be who they really work for.

There are clearly a lot of things about the bailout plan that many of us do not like, but the Treasury's doing them anyway. Welcome to the new 21st-century collectivism, in which the majority of us get collectively, and repeatedly, mugged to save the bad players, all of whom raked in the cash while times were good.

Thanks for nothing, Paulson.

Related ranty Foolishness:

Bank of America is a Motley Fool Income Investor selection. American Express is a Motley Fool Inside Value  pick and a Motley Fool holding. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.


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  • Report this Comment On November 14, 2008, at 4:29 PM, offgrid2 wrote:

    Mugged ? I think we are getting creamed. Paulson borrowed our money to become a Daytrader- They send out their towncriers to yell the sky is falling and then on a time of their choosing they rush in and buy stocks. The computer programs kick in and the market rises. Then they unload all of their positions afterhours. The next morning they start all over again. They did it yesterday Nov 13th at 12:59 and 3:08. They were not in the market today. I think they are buying and selling the DOW 30 through Goldman. I'll do some research and report back - the Plunge Protection Team rides again. The Little guy is getting screwed, BIG TIME.

  • Report this Comment On November 14, 2008, at 4:32 PM, NightBengal wrote:

    While I agree with a lot of what is stated in this article, there is one item where I will respectfully dissent: The shift away from the 'original' plan of the Treasury buying a bunch of bad assets in the hope that they would come clean in the future is a good thing. This is especially true considering those bad assets are dependent upon the aptly-mentioned overspent consumers.

    The injection of capital into ailing banks, which the Treasury did at least for the first nine institutions it 'aided' with these funds, actually helps keep the banks afloat (by directly raising their capital reserve ratio) while at least giving us a prayer of getting some of the money back when the capital is no longer needed. Granted, it won't help if a bank goes under anyway after having funds injected, but still...

    That being said, unless catastrophe actually is imminent (which is beyond my call), I'll agree that we really *are* using public funds to reward the 'bad guys' here -- both in the corporate office and on the consumer level. Whether that is 'necessary' to save us from a 'depression', or whether it will in fact create a depression instead of preventing one (a la Japan), can be debated until the sun burns out. It also does nothing for Paulson's image that the plan was put forward for buying bad assets, and then the gears were suddenly shifted once people had a chance to actually think about it -- even if the change, to me, is at least marginally better than the original.

  • Report this Comment On November 14, 2008, at 4:34 PM, osulin wrote:

    We are really mugged. Two ways to solve this over-leverage problems. First method, let the housing/fiancing come down to where it should be. Second method, print T (as trillions) of money to cause inflation so that the housing price stay where it is. Wipe out the savers' money. (This is called redistribution of wealth. )

    It looks like government is choosing the second method.....

  • Report this Comment On November 14, 2008, at 4:49 PM, lillucy wrote:

    AMEN!

    I own and operate my own business. No one bails me out. We own our home, cars, and HAD money saved, for our retirement, we are 60. Being self employed all our lives we have no golden years to look forward to, as the investors that talked us into investing in our system, IT all disappeared this year. Thank you very much. We are getting to old to start over, I and my husband are very tired. This goverment wishes to bail out their buddies. That is so special, I am looking forward to paying in my 30 plus percent of any profit we might make, if we can stay in business. What are they thinking back there. We Have SUCKER stamped on our foreheads. They all need to wake up, a lot of americans paid their own bills and didn't get big bonus, or bail outs. Do like we have over the years WITH OUT. Just got a premium notice for our medical insurance it will be 1200 per month next year. I guess we won't have medical anymore, our heat bill for the winter because we have propane is 800-1100 per month if it gets cold the price of it has not gone down. We keep our heat at 63 and wear more clothes. and the house is very well built it is the price of propane that hurts 2.97 gal last check expected to exceed 4 a gal. So the slim balls running our congress, house, and treasure need to live in our world

  • Report this Comment On November 14, 2008, at 4:51 PM, SmallCapGuru1 wrote:

    what a wonderful article. yes its true, they pay for this garbage, rewarding the irresponsible, by depleting the buying power of the savers, retirees, anyone with an income, by printing dollars (diluting the money supply).

    look, i dont know what we can do. this government/senate is obviously corrupt. i had a tear in my eye when the house first voted down the bailout.

    im so ashamed of my country and my senators. these senators are destroying our childrens future.

    even if they somehow mask this mess up again with easy money, it will hit us in another 10-15 years and our kids wont be able to survive this. their future is sealed, and i fear ours is sealed now with tthis printing press.

    god help us from this CRIMINAL, TREACHEROUS government. Should be tried with treason.

  • Report this Comment On November 14, 2008, at 5:16 PM, ChurchillGreene wrote:

    Right on!

    This is a perfect example of why the government should keep out of the private sector. We've now got an unaccountable beauracrat in charge of millions of taxpayer dollars with the absolute power to pick his winners and losers. Making money in this environment now depends on who you know in Washington more than it depends on hard work, efficiency or actually doing something. Ala the former Soviet Union and most of the third-world.

    No one is capable of making the right decisions with this kind of power every time. Even if Paulson was the biggest genius history has ever produced he'd still get it wrong some of the time. Only a truly free market (regulated to ensure good information and honesty to be sure) gets it right every time.

    And we're getting ready to put the same system that brought us Fannie and Freddie, this wishy-washy credit market bail out, and now the AIG bail out in charge of the auto industry.

    Folks, there's a reason the USSR and Eastern Europe crumbled and vanished, and we're seeing an instant replay of it right here and now in the name of abject panic.

  • Report this Comment On November 14, 2008, at 5:21 PM, ecloud wrote:

    You are so right. That's been my gut feeling since the beginning: bailing out these banks is against my principles. But then there's the fear: if we don't, are we really going to be forced to re-live the depression, because all our employers are so dependent on debt that they can't make payroll without it? That's really a bad situation, if it's true, but having all the gears grind to a halt would really take several years to recover from. Maybe there could be some regulation to eliminate that problem, for next time: just as I can't (any longer) get a mortgage for a house I can't afford, no long-established company should be so leveraged that its free cash cannot pay its own labor costs for some period of time (3-6 months maybe).

    Bailing out GM would be out of the question in my view. They've been part of the problem in this country since (at least) the 1970's and they deserve to fail. And I never buy the "what about all the jobs" argument because it's a supply and demand thing: when some jobs become obsolete, and at the same time technology and efficiency of production are improved, some new and better jobs are bound to pop up, possibly in other industries. But the unions have prevented this mechanism from smoothly having its intended effect, so the pent-up fury is going to get unleashed rather suddenly when GM can no longer afford to survive. If we bail them out this time, it's just a matter of time until it happens anyway. When it does, some people are going to have to learn new skills, but that's life. We can expect within our own lifetimes that soon every skilled worker is going to need continuing education. It would be better if that were happening on an ongoing basis, so that it doesn't cause a jolt for everyone when they find their fat-cat jobs gone and have to switch careers all at once.

    As for the automotive business itself, why is it a near-monopoly? Because of regulations and other forces which discourage competition. GM lobbyists have made sure that it's pretty hard to start a new car company and compete with them. Which is one reason there are no US-based manufacturers focused on alternative energy. So I will be cheering all the way for GM to fail. Please, let's get it over with already. Let's create that vacuum for the creative entrepreneurs to fill.

    Unfortunately we the people have so little control in the short-term about what Congress does. We can't really put a stop to this madness, can we? All we can do is write letters and hope they pay attention, but to get their attention we would have to speak with one voice. The FUD gets in the way of that.

    This "avoiding catastrophe" motive is beginning to sound like the magic disappearing WMDs in Iraq. We just have a theory-of-the-day as to "why we are doing that..." rather than a solid argument.

  • Report this Comment On November 14, 2008, at 5:37 PM, offgrid2 wrote:

    Do you really believe for one second that if GM fails we would lose the ability to make cars in America ? Somebody with a lot more ingenuity, creativity and genius will be able to swoop in, retool and create the kind of vehicles we should be driving - without gas.

  • Report this Comment On November 14, 2008, at 5:52 PM, TMFCop wrote:

    Ah! The article I wanted to write...

    Thank you, Alyce.

    Rich

  • Report this Comment On November 14, 2008, at 5:57 PM, Milligram46 wrote:

    Mugged? I'm thinking pistol whipped to within an inch of our collective lives in a dak back alley while a crowd watches and cheers the beaters on while we cry out for help. However those doing the beating are wearing $2,000 suits, $1,000 shoes, have on $30,000 Rolexes and are pistol whipping us with custom made guns.

  • Report this Comment On November 14, 2008, at 6:07 PM, Milligram46 wrote:

    offgrid2 writes...

    "Do you really believe for one second that if GM fails we would lose the ability to make cars in America ? Somebody with a lot more ingenuity, creativity and genius will be able to swoop in, retool and create the kind of vehicles we should be driving - without gas."

    Ya! Exactly! Like the 2011 Chevrolet Volt! Someone aught to build that thing.

    Oh I know what you're thinking, someone will come in and buy the technology. You know, I think there are a lot of companies that would love to buy a 40 mile range electric car in all weather and at all speeds, that can then get 102 MPG on a small engine that powers the electrical system giving the car a 400 mile range for $30K to $35K. I mean the Tesla sedan, which is dead because they are out of money too, was only going to cost the average buyer $60K to $65K but ehhh, who is counting.

    I would think that a nice group of investors,funded by Exxon/Mobil, Texaco, Halliburton and a few oil services companies would love to buy the rights for the Volt with all those profits they are sitting on, and then crush up the test mules, toss the design team to the wind, rip the blueprints and refuse to share the patents.

    That's a GREAT plan!!!

    Hint, the Chevrolet Volt, if you actually did some research instead of spitting out the same old tired story line is light years ahead of anything that any major, viable, auto maker has in development - but ya, toss it in the trash. The next generation Prius is reported to MAYBE get 50 MPG, and Toyota was saying just 24-months go that the Volt and viable commercially producable plug-in vehicles were impossible.

    Also, the producer of Who Killed The Electric Car is working on a new documetary called, Who Saved The Electric Car and has unfettered access to GM and the Volt design team, and has driven the test mules - he was also at the Volt launch in September of 2008.

    But ya - someone else should do that, and we should just throw all of that in the trash. Along with the fleet of GM hydrogen vehicles in LA and Washington D.C. - lets throw them in the trash too. Did you know that the principal source for H2 is Natural Gas? Did you know that when the Natural Gas lobby approached GM on H2 production they said, ummm, we think there are better choices than continued reliability on hydrocarbons?

    Ehhh, what's the point. This country will get what it deserves. A whacking of $31 billion in raw materials purchasing annual right off the top. And if you think GM can go BK Chapter 11 and reoganize, ask yourself this question, would you buy a car from ANY bankrupt auto maker? If you were eyeballing that SMART42, or a Prius, or what ever else floats your boat and the day you walked into the dealer it was announced that auto maker was bankrupt, would you buy the car anyway? If you were a bank, would you give the loan anyway to a bankrupt auto maker? Would you sign a purchase and sale agreement with an organization that is sitting on your cash and loan amount before they've transfered the title over into your name?

    See why it is insane to think that any major auto maker can go bankrupt and still survive?

  • Report this Comment On November 14, 2008, at 6:41 PM, cann211 wrote:

    I suggest everyone write to their Congressperson, or Nancy Pelosi and ask that the 2nd half of the "bailout" not be funded. They were supposed to perform a certain way, and clearly have not. Not that I'm all that surprised...

  • Report this Comment On November 14, 2008, at 6:47 PM, jprental wrote:

    i thought this govt was against terrorism. al kaeda didnt do to us what this useless federal govt is doing. the most dangerous terrorists in the world reside in washington dc. when armageddon comes i hope the good Lord starts with the capital of this broken down country so everyone can witness these crooks get their just desserts

  • Report this Comment On November 14, 2008, at 7:37 PM, Martina62 wrote:

    Alcye- You are right on! An excellent read indeed. I've been infuriated with this Bail Out from the get go. But what has been baffling me to no end is WHY are we accepting this BS and allowing it to happen? 90% of U.S. Citizens called, wrote, pleaded with their congressmen to vote NO on the Bail Out and they passed it anyway. That's government tyranny and simply unacceptable. They work for us. Every last one of them needs to be shipped on their way out the door. I've looked all over for a group of citizens who have formed to fight this insanity and so far all I have found is the Ron Paul's Campaign for Liberty.

    They are off printing money at the treasury and rewarding these idiots for doing a crap job by paying them and letting them start all over so they can turn around and do it again?? I have a small business, if I don't run it efficiently, it will fail. If it fails, that's my personal loss and should not be the American taxpayers burden. There is no excuse in the world that this should be allowed to continue. GW came out and said if we don't do this we will go into a terrible recession. HELLO!!! Where has he been? We've been in that terrible recession already for quite some time. People have lost their retirement savings, their LIFE savings and who is bailing them out?? Nobody!! Please people, if you are aware of an organization who has started a good fight on this issue, please point me in the right direction. I personally have had enough and want to fight the fight.

  • Report this Comment On November 14, 2008, at 7:55 PM, Martina62 wrote:

    Me again. I just found something created a couple days ago on the 12th. It looks Ron Paul related but appears more aggressive as I was hoping for. The Campaign of Liberty didn't have enough "umph" and grit. This might be the one. Check it out.

    http://www.breakthebailout.com/

  • Report this Comment On November 14, 2008, at 8:00 PM, a46 wrote:

    I personally adree, we have all been mugged (robbed). Crooks!

  • Report this Comment On November 14, 2008, at 11:26 PM, HeXploiT wrote:

    Should have voted for Ron Paul.

  • Report this Comment On November 15, 2008, at 1:18 AM, SwampBull wrote:

    The American public as a whole needs to understand and express their outrage over this crime. The Wall St. banks and traders were both in on the CDO's, MBO's, and credit default swaps.

    There is no excuse for this unfettered lying to exist in our financial system. These crooks stole hundreds of billions - possibly trillions - from the honest and hard-working American citizen. There is a special corner of hell reserved for these thieving cowards.

    If our country is to learn anything from this, we must first strictly regulate the mortgage industry to prevent the debt from moving away from the originating bank. Second, we must stop rewarding failure - that is not an American free-market principle - and stop handing out cash to our country's most short-sighted and poorly led corporations. Finally, all of us need to place more pressure on employers and on Washington to start paying the middle class the salaries they deserve instead of handing over our tax money to the very thieves who stole our retirement money.

    Let the mantra of the Boston Tea Party be resurrected:

    No Taxation Without Representation!

    If our government is going to buy bank stocks with our taxes, then WE THE PEOPLE should own these shares - not the Treasury.

  • Report this Comment On November 15, 2008, at 2:59 AM, HeXploiT wrote:

    Had to read this twice.

    Fantastic article Alyce. This is what Americans will have to learn the heard way.

  • Report this Comment On November 15, 2008, at 3:50 AM, 181736065 wrote:

    The mere fact that the government is even considering this shows how treacherously fragile and susceptible the economy is. Who, on earth, can believe in stocks at a time like this - and with this kind of decision making. If GM isn't bailed out the market will probably drop another 30%. If it is bailed out, and it doesn't solve the problem because we keep the same bad management and embedded union costs, the market will eventually drop another 30% as it may need more money down the line.

  • Report this Comment On November 15, 2008, at 9:24 AM, toolzfoolz wrote:

    I think this assessment is correct. We all are living in one big dark alley and being mugged at every turn here, not to mention our kids and grand-kids too. I was against this bailout from the start. I will be writing my reps to encourage them to vote down the bailout, and I work in the auto industry. Like everything will come to a standstill if they go down? Please! Sure, it will be hard for a couple of months or so, but we will get into other sectors, or another car company will arise out of the mess with a better business model and move on. We can work there if desired. So where is the problem with the automakers going down? Yes, some retirement plans will go down or be less, 401k's will lose value, but we will recover if we do it smartly...roll them over to new plans, or if necessary good Roth plans, etc. So we will lose a bit of money...that was the risk in the first place, but if we hang tight, we can recover. That is the secret...don't panic or let the govt tell you to panic and cash those plans out....that is the worst thing that will definitely lead to depression. At leas that is my view, however humble it may be.

  • Report this Comment On November 15, 2008, at 11:26 AM, cruiser9806 wrote:

    Well, all i have to say...You all wanted Bush in 2004 so quit you're crying. You get what you voted for.

    "Fool me once, shame on you...fool me twice, shame on me"

  • Report this Comment On November 15, 2008, at 3:57 PM, whereaminow wrote:

    For those that are interested in understanding how and why this happened, I recommend "The Case Against the Fed" by Murray Rothbard.

    Austrian School Economists Rothbard, Hayek, and Mises all saw this coming a mile away, and then some. You would be shocked to read how accurate their portrait of a planned economy matches our own. Not only that, they perfectly pinpointed the media reaction and bureaucratic reaction to this mess. It's quite staggering.

    The solution is liberty, both social and economic. As long as people want to control the lives of others, they will cede their sovereignity to tricksters like Paulson et al. without even knowing it.

    You're screwed now.

  • Report this Comment On November 15, 2008, at 11:52 PM, Danno107 wrote:

    Well, America voted for de-regulation and for putting the foxes in charge of the hen house by voting certain people into office as well as having a You-know-who majority in control of Congress for 6 of the last 8 years. So now we're all going to pay dearly, except for the Dear Leader of course who, along with his partners in crime, will walk away flush with cash, laughing as they go, leaving you and I holding the bag of "toxic assets".

    The Dear Leader and the other Incompetents he planted throughout government are leaving a hell of a stinking mess that will take a decade to repair. But the Pres-elect and others want to bail out the dinosaurs in Detroit now and Dear Leader may be going along with it. So we've not only been mugged by the outgoing thugs, we're goijng to get it agin by the incoming admin. How can you possibly win? Especially if you're 50 something and just had your portfolio hammered by 55%, your home value has dropped by 40% and are looking at rising inflation due to the foregoing mess as well as the ridiculous occupation we're hemoraging $13billion/month for. I used to laugh when I'd hear "we're a banana republic with nukes". Not anymore.

  • Report this Comment On November 16, 2008, at 7:11 PM, telcoprince wrote:

    The plan was to buy the bad assets because that would add capital to the banking system and the banks would start lending again. The banks are not lending so why buy their bad assets? Keep in mind that just as banks can lend out around 9 dollars of every 10 that they get in, they contract capital when write-offs happen. Hence, loans to good, hard working, deserving American businesses can't be made.

    There was a comment on a business owner that doesn't get bailed out. True... but this is a bail out to keep America running. If the financial system melts down, it takes everyone down. The option is to let it melt. While it it tempting to keep government out, their policies on home lending, oversight, and interest rates stimulated the bubble. There is a lot of blame, but a soft landing is probably better than a new great depression.

    I believe Paulson is doing an amazing job given that he is: (1) only human, and (2) asked to do a lot quickly - with no real game plan of what works, but an understanding of what didn't in the great depression-- in a perfect storm.... with many finger pointers. Critics with no answers.

  • Report this Comment On November 17, 2008, at 2:31 PM, jeffreyholden wrote:

    Nicely done, Alyce! You hit all of the important points: perps; evil; powers that be; collectivism. Thank you for the guts to write this.

    As others have hinted, imagine if Americans had the forethought to elect Ron Paul rather than choose the lesser of two evils. It seems that Paulson and his minions are one step ahead of us.

  • Report this Comment On November 18, 2008, at 4:10 PM, Dadw5boys wrote:

    There is no way to have 4 to 5 % growth for many years running without ending up with a lot of debt. That what high interest rates do to slow growth. It makes people reconsider pushing the economy higher thru the use of debt.

    We had so many warnings about the low interest rates harming the economy over the long term in 4 different hearings before Congress.

  • Report this Comment On November 19, 2008, at 1:23 PM, rivercitytrader wrote:

    Mountain climbers have a saying: it's the second mistake that kills you. In other words, the real question (for the moment) is not how or why this crisis has happened but what to do about it. I am a little surprised that such a sophisticated crowd does not have a slightly more nuanced view (with the notable exception of Telcoprince) of what is, I hope we can all agree, a rather complicated and perilous situation. The desire for revenge on the fools (note, small F) who we believe got us into this mess in the first place (actually, look around, the enemy is us) is understandable, but this is analysis led by emotion. For example, it seems fairly plausible to conclude (with the benefit of hindsight) that allowing Lehman to collapse in disarray, as opposed to orchestrating some sort of orderly unwinding, was a mistake that contributed to AIG's bailout, among other things. Sure, Dick Fuld got taken out to the woodshed, but did that really make anyone feel better (OK, maybe just a little) or help to resolve this mess one iota? I don't see how. The rhetoric of the free market - to allow individual investors or groups of investors to bear all the risk (and reward) - is simply that, rhetoric. We operate in a political economy and always will, so there are more considerations than simply punishing those who have made bad bets (or allowing the market to do so). What we need to do right now is to ring fence the problem; just like urban fires, we are going to have to metaphorically dynamite fire breaks into the broader economy, to keep the damage from spreading. If that means injection of capital into ailing enterprises, fine; if it means boosting fiscal spending or extending credit to companies that have been caught out by the demise of the commercial paper market, so be it. No one should draw the conclusion that what we do in extreme circumstances is what we should continue to do when the dust settles (i.e. drown people in cheap credit). Rather, when the fire is out, we need to resist the temptation to exercise a collective amnesia about the nature of financial risk in a political economy. To whit: we (citizens) have allowed certain investors to accumulate and/or pass on risk that was simply too large for them to bear. In short we allowed some boys and girls to write checks their butts couldn't cash. Yes, that means, for starters, we need more sensible regulation of derivatives, some limits on the amount of leverage permissible (if the entity wants to sell securitized products to other investors), and make mortgage originators hold some of the trash they attempt sell on to others. The biggest challenge for us will be taking on the fallacy that investors are out there, where the wild things are, bravely taking on risk and living (or dying) by their wits, independent and on their own. This is a hopelessly antiquated notion in an age of vast pools of capital and globalized markets. The interrelationships of all things means that we must come to grips with the true nature of risk and financial contagion, and to realize that, in the last analysis, tax payers are the ultimate bearers of risk and lenders of last resort. Therefore they are entitled to set the rules which will protect themselves in future.

  • Report this Comment On November 20, 2008, at 12:32 PM, tfdg wrote:

    Amen !

    But is anyone with power really listening or willing to do anything ?

  • Report this Comment On November 20, 2008, at 4:52 PM, NinkasiMPB wrote:

    The fundamental problem here is human stupidity and greed. The Founding Fathers chose a constitutional democratic system of government not because it is a good system but rather it is the least evil option available. The problem with it is that when, for example, there are stupid and greedy people voting, the people whom they elect are elected to help facilitate this behavior further, even at the expense of those who behave in a more upright way.

    The only solution I can think of is for the president, the president-elect, the entire senate, and the entire house with the exception of Ron Paul to acknowledge their incompetence, dishonesty, and lack of respect for the Constitution and to resign. Before doing so, however, they should pass an amendment requiring people to pass a basic intelligence test and another test aimed at ascertaining a person's knowledge of the Founding Father's intentions before being allowed to vote in any race for a national level office.

    Sadly, I see the movie Idiocracy becoming more and more of a reality every day. I am not married and do not have any children but with the way I see things moving (short term economic concerns aside) and the plain stupidity of the average person who makes up this world, I am not sure that I want to.

  • Report this Comment On November 20, 2008, at 6:38 PM, vest0r2 wrote:

    Remember when Dianne Feinstein (D-CA) explained that her offices had received tens of thousands of phone calls totalling 93% ***AGAINST*** the bailout..? That was immediately before she cast a "yea" vote. Mugged? It's worse than that -- and it's high time to erect a gallows on the White House lawn and USE IT. Congress is corrupt through and through. Paulson has staged a coup d'etat @ the Treasury Department. Oversight? Who needs it? Just keep that money coming, thank you very much.

  • Report this Comment On November 21, 2008, at 12:30 AM, MikeMark wrote:

    Thomas Jefferson felt that a national bank would encourage people to desert agriculture for speculation and give the commercial interests too much power in the federal government.

    Jefferson supported his views by a “strict construction” of the Tenth Amendment of the Constitution, which specified that “the powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” Jefferson argued that since the Constitution did not specifically empower the federal government to establish a national bank, it could not do so.

    ----

    Too bad we have allowed thieves to hold the bag, but why give them more?

  • Report this Comment On November 21, 2008, at 10:19 AM, austinrain wrote:

    The GM and AIG executives, among others, seem to be thumbing their noses at us and saying to us, "Let them eat cake!" They are imploding Capitalism through blatant self-interest. The obvious response is "Off with their heads!"

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