A man was walking in the forrest when suddenly he was struck in the chest by an arrow. He laid there for hours dying until eventually being found by some nearby villagers. However instead of instantly tending to the mans wounds the villagers inquired how he came to be struck by this arrow.The injured man, barely hanging to life was unable to respond, so the villagers began to hypothesize, then debate, and then eventually argue on how this arrow found its way into this mans chest. As the villagers carried on, the man died and so did the truth as to how he was struck with the arrow.
Agreed bailouts in general are not a good idea, a waste of tax-payers' money, create deficits, inhibit free markets to auto-correct themselves, and in a sense "reward" those for investing in risky ventures... however I have to admit I agree with former Fed chairman, Allan Greenspan, when he states that there are instances where these bailouts are absolutely critical for maintaining the trust of the investor, which is key in a free-market economy.
Why should a home owner be indirectly penalized through falling home prices or rising mortgage rates for those who manifested financial chaos through foolish or malintentioned investments? For whatever reason we precipitously blame the government for doing exactly what it is in place to do; yet we seem to neglect any focus on retribution for the guilty parties involved in the mis-dealings in the first place.
In 2005-2007, Bear Stearns was recognized as the "Most Admired" securities firm in Fortune's "America's Most Admired Companies" survey, and second overall in the security firm section. How do stocks of such an esteemed firm as this fall 88% over a weekend? How do all these financial experts fail to foresee or better yet vociferate concerns of such a catastrophe? Obviously in hindsight Bear Stearns troubles existed long before its collapse yet for whatever reason not much was publicized to enlighten the public of potential danger. So does this mean all investors in Bear Stearns were involved in risky or speculative investments? Should an unrelated majority be negatively impacted? Granted when investing in stocks there is an implied understanding to the risks envolved but more importantly what kind of market would we have without any honor or trust in its validity? If a firm such as Bear Stearns can tank in less than a week's time what's to say the Dow cant do the same? Its more important to maintain investor confidence than to do nothing and let the economy cease and stagnate.
Really what seems to go greatly amiss amongst these conversations is the failed policy to hold those responsible for such fiascoes. This is not to say that the government should heavily regulate or involve itself in big-business but there has to be well understood and strict retributions for those found guilty of foolish or intentional bad business. This argument falls short in not providing a real solution for determining who gets punished and who gets bailed out but it definitely encourages focus on discussions that can actually materialize an appropriate response. Actually what this really means is I am tired and dont want to write anymore :)
If it's that necessary, we better look at decentralizing the critical industries so we don't have to do it again. Let the businesses fail, and let the government's only role be to agree to guarantee insurance claims that have to be liquidated as part of the end of insurance companies like AIG.
In the good old days, you might invest in something risky to increase your expected return, but you understood that you could lose everything. Fortunately, you now have an alternative -- hostage investing. Invest in something with a very high expected return, but something that is so core to the health of the overall economy that effectively, the entire country becomes hostage to the success of the investment. We've had some form of this for quite a while, … more