Should they act or shouldn’t they

Normally, I’m entirely on board with the theory that “that government is best which governs least.”  Normally, I fear last minute bail-outs, especially those from a Democratically-dominated Congress.

But the world economy is a different animal.  When thinking of it, it’s worth thinking also of Roosevelt’s warning that “the only thing we have to fear is fear itself.”  Markets are information-based.  Fear itself is sufficient to destroy a market.  I worry that, based on fear, if Congress doesn’t “look busy” quickly, world markets will collapse when Monday’s trading opens, starting an irreparable downward economic spiral.  Even if the plan is a lousy plan, and just expensive window dressing, it may have value if it staves off fear.

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  • Ozzie

    ” Even if the plan is a lousy plan, and just expensive window dressing, it may have value if it staves off fear.” — Book

    Some say that the bailout will lead to much bigger problems down the road, such as the collapse of the dollar.

    Maybe the Republicans shoud stick with their word?

    From the 2008 GOP platform:

    “We do not support government bailouts of private institutions. Government interference in the markets exacerbates problems in the marketplace and causes the free market to take longer to correct itself. We believe in the free market as the best tool to sustained prosperity and opportunity for all.”

  • Ellie2

    I can’t speak on the merits, but this *feels* like extortion to me. The middle class must bail out the super wealthy or else they will trash my life-savings, my cash balance pension and the equity in my home.

    The corruption involved is staggering. The only way I’ll accept this is if I see people going to jail. These firms were gambling with house money: when they won they paid themselves off quite handsomely — and the regulators who made it possible — , when they lost the house must pay off or collapse.

    This will hit the boomers hard — all those bazillions who started turning 62 this year. I predict a bad year for incumbents.

  • suek
  • Ymarsakar

    We do not support government bailouts of private institutions.

    Good thing the Democrats made FM into a quasi government institution, not a private one. All that lobby money the dems got paid by Fannie May did pay off, after all.

  • Ymarsakar

    Maybe the Republicans shoud stick with their word?

    Maybe you should get some intellectual honesty and give credit where credit is given Republican opposition to the bail out rather than trying to hold Republicans to a standard you neither care about nor recognize is attainable for anyone except yourself.

  • suek

    And we expect _Dodd_ to be in charge of a solution??? Unbelievable.

  • Mike Devx

    Many articles on the crisis have been mentioning the “moral hazard” involved in the bailout. The market only functions well when risk/reward are allowed to function correctly. When you remove the risk, the system becomes unstable.

    It appears that those in charge of managing the risky loans made a calculated decision early on that the federal government simply would not allow them to fail. Then, as the housing boom/speculation cycled wildly upward, they simply rode it, playing the games with the debt instruments that were played; knowing far better than the rest of us that all speculative bubbles crash, but turning a blind eye to that. I’ve heard it said that the S&L bailouts created the “moral hazard” in the first place, and various subsequent rescues kept exacerbating it.

    This is the “moral hazard” that can lead to extreme crisis. It’s different from the issue of whether regulation should be put in place, or which kinds of regulations should be put in place.

    With the bailout becoming a fact (assuming it does), it seems to me the problem of the “moral hazard” is going to become even worse now. The destruction of the integrity of the risk/reward decision seems likely to lead to more and worse decisions of the kind – a desperate pursuit of short term gains with no thought for long-term catastrophe that must inevitably eventually occur. (Kind of like constantly doubling down at the casino… the dice will always eventually turn against you, and it only takes one such bad roll.)

    Even a CEO will think: Hey, the government will step in and save us all if at some point in the future this goes to hell in a handbasket. I could be prudent and guard against that… but I will refuse to even consider it, because if I did, my shareholders will replace me with someone who will give them their short term profits that they demand. The government will step in and save us.