Saturday, September 20, 2008

Some Thoughts on Bailouts

First, there was the shotgun marriage of Bear Stearns and JPM. Then $85 billion to AIG. Next came the loans to shore up money markets. Finally Friday’s announcement of a special program (most of the important details still unknown) that will cost “hundreds of billions of dollars”.

And of course don’t forget the alphabet soup of special facilities created by the Fed to protect the big money movers.

Bailouts, all. A lot has already been said, of course. But there are two things that I wanted to add to the conversation.

First, folks on the left and the right have referred to the recent onslaught of government bailouts as “socialism”. On the surface, it may seem that way, given that government now “controls” vast swaths of the nation’s financial system. But nothing could be further from the truth.

Let me say it more plainly; this is not socialism. Socialism is a form of government that seeks to equalize the playing field for all, insuring that that the fruits of labor are shared equally (but not fairly, necessarily. That’s one of the major reasons why socialism doesn’t work). Does anyone seriously think that captains of finance have embraced the philosophy of “workers of the world, unite!”? The same guys with multi-million dollar “golden-parachutes”, sometimes taking home more than a billion dollars in a year. The same guys who have embraced shady accounting practices so that they and their companies pay as little in taxes as possible, sometimes percentages of income far less than the average American worker. The same guys who have broken union after union over the decades. We’re supposed to believe that just this week this crew has decided to abandon Friedman and embrace Marx with open arms? Come on…

Let’s look at it another way; does anyone seriously believe that the average American stands to benefit financially from the actions taken this week? That the profits of AIG, or BS, or Fannie and Freddie will be split equally amongst the masses? Of course not. Instead, tax payer money will flow from the Treasury to shore up the accounts of what should be insolvent corporations. Essentially out of your pocket and into the hands of Wall St, only making a quick pit stop in DC. Or worse, putting it on the national credit card by selling even more treasuries. This is not socialism. Instead, this more resembles a different form of societal structure: kleptocracy.

Second, how did we get to the point that simply the failure of one company would mean utter chaos for society at large? This fact alone illustrates very nicley that the financial system ceased to be a free market long before last week. The lifeblood of free markets is competition. Competition gives birth to fair pricing of goods and services as well as efficiency of commerce. If one business fails, another takes its place.

The fact that these corporations were to big to fail means they were too big. Period. If AIG couldn’t hack it, then some other corporation would have stepped up to the plate. That is if the market place was truly free. But clearly it was not. Instead, what existed was at the very least a pseudo-monopoly. Many markets left to themselves will gradually evolve into monopolies, and one of the roles government needs to play is to insure that monopolies don’t get to the point where they distort free markets to the point where they aren’t really free anymore. Obviously government failed to meet that obligation in the financial sector the last few years.

I suppose that’s what happens when the foxes are put in charge of the hen house. Only time will tell if the foxes can keep fooling everyone into believing that there are still some hens left.

Note: It should go without saying that the above is my opinion and my opinion alone. No doubt that many of the other Angry Bears would disagree with at least some parts, if not the whole. But I'll say it anyway.


Anonymous said...

Those wealthy guys already paid very little income taxes due to the unfair tax codes of Republican's Trickle down theory. Their corporation already received hefty tax incentives, tax cut, earmarks...etc..before the bailout. For example Exxon Mobil got millions in tax incentives despite of its recent ridiculous profits. Thus the so called fair competition, free market are just a spin to fool people, and to cover up their dirty deeds. Their other argument about job creation is just as b*ll sh*t. All businessmen are here to make profit for themselves, and themselves only. They will pay their employees as little as possible, and without all the benefits if necessary. Hiring employees, and paying for them are just out of necessity. Covering the benefits, such as vacation, health care....etc...are just because of the laws. Let face it, most business crooks will be very happy to have the slaves back to work for them if it is possible. Thus the so called job creation for American people are just B*ll Sh*t (ever heard the word "outsourcing"). For some reason, today every businessmen, including car salesmen, claimed that they're the sole providers of the American people, acting as if they are the Saints, the column of the society, without them there would be no job (because no one else will create them...yeah right). Those crooks successfully lobbied Congress to leave the minimum wages untouched for years. Exploring all the possible loop holes in the law to avoid paying taxes. The average working men/women, the modern slaves are the people who pay the most amount of taxes. Now they also have carry all the heavy loads to bailout them out, since those wealthy owners already contributed very little to the tax fund.

Anonymous said...

Oh, it's "socialism" all right. At least if your name is Fuld, or Paulsen, or Thain, or.....

For all the rest of us chumps, it's capitalism as usual. No bread? Go eat some cake...

Anonymous said...

Interesting to read your take on the financial bail-outs. From where i sit it looks like everything is going to plan.... scare the slaves with another (financial) 'terror attack' while consolidating the banking sector, placing almost complete control in the hands of those who caused the problems in the first place.
HOWEVER much of the present political and media discussion does not take onto account the CDS (credit default swap) timebomb or the inherent unsustainability of the fractional reserve banking system. As more and more individuals become aware just how at risk there personal deposits in retail/high street banks it can only be a matter of time before there is a run on the bank. By this i mean hundreds/thousands of people queueing (and quite possibly fighting!) to get their money.

How this will play out is any ones guess!

PS i have linked to your blog on where i hope to cover the effects on the private bank depositor in greater detail.