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Oh, the irony...
The banks got us into this mess by over-borrowing and investing in very shaky financial instruments. And how are we going to fix the problem? By over-borrowing and investing in very shaky banks. I suppose it's better than the government buying the exact same things (mortgage-backed securities) that got the banks in trouble, but it's still pretty risky. We don't know the future losses banks might suffer. Governments could pile up massive amounts of new debt, and then, we'd really see an economic meltdown.
Here's hoping the plan works, but it's the constant sacrifice of future for the present that bothers me. Borrow, borrow borrow. Debt, debt, debt. What do you think?
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I agree with Joe the Banker--the problem does not lie with all banks. The problem lies with a handful of financial institutions that were allowed to roam free in an area of comparative lawlessness and entangle much of the rest of the economy. But let's be clear: this hasn't happened in the USA only. It's an international phenomenon.
I have a question about confidence, though.
All I hear about is how we have to restore confidence. I do not understand this.
If the financial institutions were out of money, then they couldn't lend. That I understand. But they *have* money. They're just choosing to sit on it. Because they are making this *choice*, entire economies are suffering.
Instead of rewarding this behavior with even more money (which, to all appearances, they are simply stuffing into their mattresses along with the rest of their money), why aren't governments simply commanding that lending begin again? Are governments the servants of the megabanks?
It appears to me that the governments are simply afraid. Afraid not of the megabanks, but afraid to be seen taking certain steps that would be construed as anti-capitalist.
It's a serious question I have. Is a lack of confidence really all that's at stake here? Couldn't that be solved with decisive intervention on the part of governments?
I see the series of recent bailouts in two ways. Both could be true.
First, they are like early presidential pardons for institutions accused of crimes and misdemeanors.
Second, they are part of a long-running conservative strategy to Starve the Beast; in this case, it's Bankrupt the Beast, so that having spent its force, the government will collapse, leading a pumped-up private sector to handle everything henceforth.
In their death rattle, the Bush people seem to be making damn sure that the new president won't have many economic options or much money left over to govern with.
How about this: A company named LS9 (private, no stock) has genetically modified bacteria to eat plant fiber and excrete oil. Turns out the natural fatty excretions of this bacteria are almost exactly the same as oil pumped out of the ground. They estimate $50 per barrel production cost, and 225 square miles of production facility would provide 100% of our fuel needs. Figure $1 per barrel taxes and $4 per barrel profit, and gas sells for about $1.25 a gallon. Then we build plants in every country on the planet and take our $5 taxes and profit from every barrel produced. I wonder how long it would take planet earth to use 42-trillion barrels and pay off our debt? But wait, there's more: There is a net loss of carbon. Ten units of plant fiber carbon in = nine units of fuel carbon out. Drive a gas guzzling SUV and clean the air.
Call me crazy, but taking 10 parts of plant carbon, which is sequestered in the plant's material and not in the air, and putting 9 parts of that carbon back into the air, would increase the amount of carbon in the air. A better solution might be growing more plants.
I was told some time that the reason governments debts are considered 'no risk' is because they can raise money through the force of taxation.
Basically, it appears that in order to 'pay off the debt' of these banks, the government will force all of us to work more to do it (ie, raise taxes).
It almost a collusion between the government and megacorporations, to extract forced labor from the ordinary person.
I agree with RC. When larger banks are encouraged by the government to gobble up smaller troubled ones, we're just creating more institutions that fall in the "too big to fail" category. These banks know the government will step in if they get themselves in trouble, and therefore will take risks that they otherwise might not.
I hate borrowing from the future in general, but what's especially troubling to me about the current situation vs. the "New Deal" programs is that in the 1930's they used the borrowed money for programs that directly put large numbers of people to work building infrastructure around the country. It was an investment, and we had something to show for the money spent. We're still benefitting today from some of the infrastructure that was built. Today's borrowing is nothing like that. The money is going to many companies that don't deserve it to save them from stupid decisions. Even in the best of circumstances we won't get anything tangible out of our new debt-funded spending.
It seems to me that part of the current crisis was created by unrestrained borrowing. More borrowing, especially for no other purpose than to ease the markets, doesn't seem a wise course of action. Doubly so when there is no coherent long-term plan to prevent a similar set of circumstances that led to the current crisis.
The other concern I have, is that so much trouble has been caused by these massive financial institutions. Many of the "survivors" have only grown larger.
These institutions need to be broken down into smaller parts that are less likely to destroy a whole economy.
I have felt in the past decade, many of these credit swap situations seem to smell of anti-trust.
They keep saying "now is not the time to point fingers" but that time is coming very soon. There needs to be a long hard look at these mega corporations. We put too many eggs into too few baskets.
We may be sacrificing the future for the present, but the future isn't real to most people - their current standard of living IS - and from a societal standpoint, we aren't prepared to dial back our current standards of living to prepare for the future.
I agree with your concerns. I fear this may only delay and only worsen the financial adjustments needed to our markets. The economy is in need of deflation.
The financial base of the United States has eroded. While the stock market is critical to the economy, it is based on the finances of the people. The majority of people in the US have seen little increase in their own incomes while inflation has carried prices to new highs.
All the "new" jobs, most paying less than ten dollars an hour, are doing nothing to improve the stability of the economy. The economy needs to trickle up, as well as trickle down. When companies as well as our government finally realize that stripping out the economy for corporate profits is counter-productive, the economy will truly be on its way to recovery.
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