Planet Richard
01 October, 2008
Bailout2
I keep reading the arguments. "We need the bailout or else we will see another depression!" "No way should we the people bail out the fat cats on wall street. They took the risks. They should go under and let the new firms who did not take the risks pick up the market share."
I think we are missing the point. Cash will not fix this. Cash may stabilize things for a bit. But the disease is caused by unregulated securities - credit default swaps and the like. When everyone buys the same hedge on the same underlying asset and the underlying asset value is hidden from view or promoted as a "no lose" investment, we are inviting disaster.
We need transparency to rebuild trust. If a hedge is an insurance product, it should be regulated as such with clear capital reserve requirements supported by transparent accounting rules. If a hedge is an option, it is mark to market valued with a description of the underlying basis for the option.
We need clear accounting rules to rebuild trust. Relaxing the mark to market accounting rules for assets that won't sell is going in the wrong direction - away from transparency.
If we the people, are going to burden ourselves with taxes and inflation (and quite possibly a resulting recession) in order to stabilize today's financial markets to prevent a deep dive into an economic depression, then we the people demand a revamping of how these financial markets are regulated to prevent opaque instruments of investment from becoming the "norm" for investing capital.
Everyone is crying for the cash or yelling to keep the cash in the treasury. We should be screaming for, demanding, protesting, voting, and penning for more appropriate financial regulation to protect us from most human tendency to hope for the impossible and believe in the unbelievable.
If we the people behaved in a consistently rational manner regarding investments and returns, state lotteries, Las Vegas, bingo, and the like would not even exist.
Just take a moment to think.
Labels: bailout
