Folks, the sad reality is that we have a subprime financial system which is insolvent. I think that there are some realistic options. You either have government remove the bad assets from the banks balance sheet, or you have the banks default on their obligations, or you print a lot of money and hand it over to the banks. I’m sure there are other things that could happen, I just don’t know what they are. The bottom line is that we only get to pick who pays and when. There is no solution where the problem just magically goes away.
Clearly the system is not as we would like, but wishing we had a better system won’t stop the current system from sinking us all. A bailout of some form is necessary to deal with the limitations of the current system.
Paulson’s plan for buying up the bad assets at above market prices will probably work. Here is the problem. Paulson and his banker friends want the bailout to happen without any downside to them personally, or in the fundamental way in which they do business. In other words, they want business to continue as usual after this unfortunate affair. This is like carting away the dead bodies from some guy on a shooting ramage without shooting the perp. A great deal for the perp, but not so good for the victims.
The system as it exists today is a systemic risk and needs to be fundamentally changed. Financial innovation is a good thing. Securitization of mortgages is a good thing. Making money is a good thing. Perverse bonus systems which reward risky and destructive behavior is a bad thing. Giving golden parachutes to CEO’s who wipe out their shareholders is a bad thing. The bribery of congress is a bad thing. The existence of institutions which are too big to fail is a bad thing. In general, the lack of accountability is a bad thing.
In order for capitalism to work, you need a way for good decision makers to be rewarded and bad decision makers to fail. This system needs to be restored. Your neighbor who purchased a home he/she couldn’t afford should not be allowed to keep the home and should not get special treatment of any kind including any sort of loan workout deal. Senior management at public corporations have great incentives to the upside if a company does well. They also need to share in the downside if the company does poorly. We need to FORCE companies to be truthfull and transparant when making public statements to shareholders and failures to do so should require either termination or even jail time.
It seems that the liberals want to have to government get shares in any bank that gets the bailout. Government ownership isn’t the answer. The government that can’t fiscally manage the country shouldn’t be allowed to influence others unless it can prove it can manage it’s own affairs. Bailing out homeowners isn’t the answer either. Why should the system protect those who can’t read a loan document or accurately calculate what they can or can’t afford?
It seems that being fiscally conservative has meant cutting taxes while running up deficits, and allowing the market to function without any meaningful oversight. This is just as flawed as what the liberals want. Running up deficits is nothing more than a scheme to tax your children for what you consume today. Capitalism is an unstable system without a minimum of controls. The root of capitalism is self interest and greed, and these vices will consume the system if not checked. It’s not that we didn’t have controls, it’s just that nobody was around to make sure they were followed in the manner in which they were intended. What’s the point of public SEC filings if content is a bunch of lies, half truths, and obfuscations?
Is a bailout necessary? I’d say that it is. I’d also say that after the bailout, the system should be fundamentally reformed. Unfortunately, the liberals don’t get it and neither does the current crop of conservatives. The sad reality is that the system is only as good as those who run it. While the constitutional government and capitalistic market works well even in the face of bad people, no system can work when the corrupt, evil, and incompetent fill every level and every office.
At this point, I wonder if it might be better for the entire system to crumble. At some point you have to stop trying to patch the levy and start building a new one. I didn’t leave the Republican party because I disagreed with the stated platform, I left because the leaders have shown a willingness to circumvent the constitution, place party loyalty over competence and in doing so have shown an ineptness at running the government itself. They have shown a propensity for corruption, and failed to demonstrate any kind of integrity or values in how they conduct our business, while they speak of the same in their speeches. They have appealed to fear instead of courage, and foolishness instead of sober reason. The political parties need to be refined by fire and the dross cleared before I will consider another vote for the status quo.
The Bible holds leaders to a higher moral, ethical, and professional standard. I think that’s sound advice.