Planet Richard
29 September, 2008
Bailout Fails
Upon reflection, I am glad that our representatives refuse to open the coffers for the Wall Street banking titans. Almost $400 billion has been spent to date in various "bailouts." What is the result? A continued drop in trust in the decision making abilities of the financial professionals controlling trillions of dollars in assets.
The piper is here. It is time, unfortunately, to pay up. I only hope that those of us who did not borrow to excess over the last 8 years are not paying for the sins of those who did. They enjoyed the borrowed wealth while the rest of us just watched them splurge and made more prudent (i.e. boring) financial decisions.
We have created a governing system in order to build a fair playing field for us to compete in. This playing field appears to need repair. That needs to be the topic of legislation to stabilize financial markets. Throwing inflated cash at the problem will not solve the root causes of it.
Imagine, loaning someone money without any verification of income and banking on a 20% increase in the worth of the underlying asset. Whose income increases by 20% a year to allow them to pay 20% more for goods or assets? What percent of the population enjoys such growth in prosperity? How long has such growth ever lasted in the history of mankind?
Then selling the loan as a "security" with no disclosure of the risk of the underlying loan or the probability that the underlying asset would actually increase in value.? What nonsense. I saw this bogus business model 6 years ago and was just amazed that it could continue for so long. Unfortunately, the longer it went on, the greater the pool of accumulated debt. It was no different than printing money willy nilly.
The rules need to be changed. We can't go on lending against bogus assumptions in valuation or value growth. Cash will not rebuild the trust that the markets needs. Letting those who profited from the excessive lending get away without suffering any serious repercussions will simply not stand with the rank and file.
Come on Congress. Don't let the Executive Branch cronies drive this bus. We need trust in the markets. That will only come if the people who made the bad decisions are replaced and if the rules keep others from making the same bad decisions. Power corrupts. Absolute power corrupts absolutely.
