President Bush addressed the nation in the Rose Garden this morning. He said that the government was pouring more money into the financial system, to the tune of $250 billion, so that it would have “greater stability”. The extra money, please comment if I heard it incorrectly, is being used to buy shares in the smaller banks so that they can lend money to other banks and to people. Upon hearing this, the Dow (as if it’s a person in its own right) shot up 900 points. Once the dust has settled and banks have money again, they can buy all this worthless crap from the government, thereby keeping the debt from passing onto the American taxpayer.
Two really major things could go wrong here:
1. You’re assuming that banks will buy back their $1 trillion worth of purchases (stocks, loans, etc.) If they don’t, we, or worse yet, our children, will have to pay for it somehow.
2. You’re assuming that we’ll learn from this. All we’ve learned is that our government can bail us out so that we can make the same mistakes later on down the road.
No, I’m not going to compare this to the Great Depression because that was 80 years ago and these are different times. There’s way too much money on paper (and not in our hands.) We’ve learned that we can borrow money to get the things in life we really want, but don’t really need and could never afford. We’re throwing money at a gaping wound in the Middle East, hoping that bricks of cash will build schools and hospitals.
Our deficit is at about $10 trillion. When a family’s debt gets too big, the banks and collectors come knocking on the door. Where’s America’s debt collector? If we don’t learn from these colossal mistakes, how is our economy ever going to really recover?
This hurried missive brought to you by your neighborhood curmudgeon.
UPDATE: OK, one mistake I made was that I thought the $250 billion was extra. It’s not, but the principle remains. The American financial system dictates that it’s common practice for banks to loan money all the time to other banks. I know I’m not a genius when it comes to anything heavier than a savings account, but that makes absolutely no sense to me. Everybody loans money to everybody else, and that’s business as usual?
October 14th, 2008 at 1:50 pm
[...] Alex is right, what’s going on right now is despicable. Unfortunately, it also seems pretty necessary. Will this hurt many people over time? Yes. Will we learn from these mistakes? Perhaps. The question comes down to “who’s doing the hurting and what is it we should learn.” [...]
October 16th, 2008 at 8:12 pm
I am also upset at this ‘bail out.’ They are encouraging businesses that do bad business to keep right on doing it. What happened to the survival of the fittest? What about those companies that didn’t say ‘just write down you earn “X” and we will say you do so you can buy this house you can’t possibly afford. And if you foreclose, we win because you never touched the principle and we can sell it again and make more money!” However, they didn’t count that other people wouldn’t be buying now so now their stuck with their bloated over priced homes. In a NORMAL world, when demand goes down, so does the price, but these greedy sons of whores kept the prices up anyway so their little profit margins won’t get hurt, well Boo F’ing Hoo. Now we pay for it, our kids pay for it. AND people who bought their home the right way, pay for it, and businesses that barely survived because they did it the right way, pay for it. It’s a sad situation that will have echos for years to come.