tapman.net

One of the reasons I don't like the Emergency Economic Act of 2008 is that we are, to at least some degree, doing this to prevent stories about people losing everything. While it's understandable to want to help other people avoid economic hardship, and even morally required to assist in some way, it's not a good reason to save the institutions that are failing.

Quotes like this one from the Wall Street Journal expose our national idiocy about mortgages and finance, "Few investors realized the danger that accompanied banking's heady growth. Once-stodgy institutions were dabbling in exotic new securities based on high-risk mortgages, leaving them exposed when the housing bubble collapsed."

The first sentence in that quote speaks volumes. Investors by definition are not investing in something if they don't understand it, they are gambling. If people were too ignorant or lazy to actually look at what they owned with a critical eye, than why should I spend my money to help them out of their current hole? Shouldn't I enjoy the opportunity for my financial growth that comes as a result of other people leaving the markets? If John Doe's personal wealth was wiped out by the banking crisis, but I was smart enough to diversify my money so that I weathered the storm, should I benefit more than him? I think this is a key aspect of the bailout and one that's not often talked about. Our politicians try to say that the bailout wouldn't make people rich but it certainly could prevent a bunch of people from losing a lot of money.

Whereas a bankruptcy would wipe out shareholders, a government buyout of a company's poorly performing debt would actually save shareholders because they would keep their stocks and the company's balance sheets would be immediately improved. The only significant concern for a shareholder at that point would be the requirements and burdens placed on the company by the government, which are not overly heavy at this point in time.

I'd prefer to see a rescue plan structured to help people who really fall, and to help people who were defrauded by company's selling complex and unethical financial instruments. Let the companies fall where they may and pickup the pieces with a safety net approach. Yes, the stories will be hard, some people will lose everything, and that's good, it's the nature of our society and a good reminder to everyone to diversify and play the game cautiously. As long as we provide people in need with basic shelter, food, and security we will, as a society, have weathered the storm and hopefully learned a valuable lesson.