$700 Billion Bailout: Pro and Con Open Thread

Okay, it needs to be discussed, but I am far from the economic expert. The House of Representatives will vote today on the revised version of the proposed $700 billion bailout. At best, I can discuss this from a theoretical / logical perspective, and then I’ll leave it up to you to toss out your opinions and concerns.

Capitalism Presumes Risk

The very nature of free enterprise presumes risk. You are free to do your darnedest to create and build a successful company. You willingly assume the risks and rewards that come from such an endeavor. That’s how it works. That’s the only way it works.

Along the way, your company may grow to employ hundreds or thousands of people. You have then supplied hundreds or thousands of jobs. Good for you. Families are fed as a result of your entrepreneurial vision. But what about when your business fails?

Hundreds or thousands of people lose their jobs. Investments in your company are lost. Why doesn’t someone bail you out? Maybe because it’s your company. Maybe because no one owes you anything.

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But think of all the people who will be affected by the losses! Yes, think of them. But think of them when you are in the process of building the business. Think of how every action and decision you make affects the lives of other people. Think about how you can bless or curse your city by the way you handle your business. And realize that the responsibility of these effects lie squarely upon your shoulders.

But the entire country will suffer if this business fails! Yes, it could and very possibly would. That is the price of success – influence. You grow, you influence. These aren’t new principles. And if the country is leaning too heavily upon unsound businesses, the country deserves every bit of trouble it receives when those businesses fail. Make no mistake about it, there is a consequence for every action. Consequences are not to be feared. They are the great equalizer and stabilizer. No, don’t fear consequences. Rather, fear ignorance. Fear foolishness. Avoid them at all cost. Take more time to evaluate the companies you invest in. Ask more questions. Do more research. Evaluate each business from a moral and ethical standpoint.

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Bottom Line: Know what you are getting into. If you make a mistake, accept your lumps and move on. This is the natural course of things.

The United States government has no business in business. They set rules and regulations. They do not rescue poor business models. To do so is to cross a line that will have terrible effects years down the road. The short and easy route to bailout does not seem logically sound. It is the reaping consequences of actions sown that affords us the insight, understanding, and motivation to live differently.

If you want a government that controls the fates of businesses, take a look at communism. I hear it’s really successful and awesome.

 

3 Comments

  1. Bryant Arms

    The financiers are desperately trying to snooker us again. We, the taxpayers, will never see that money once Congress caves in to special interests, (as usual). If we try to get it back by taxing these businesses, then they will take the good parts of their portfolios and flee to other countries. Suckers!

    If we use that money to enhance social security, then all of the retirees that lost their retirement funds in the stock market will at least be guaranteed a reasonably comfortable retirement. (The only ones who will still be unhappy are the ones trying to retire to their mansions.)

    Finally! Congress has found the money to make social security work.

    Let Congress know that if they get fooled by this bailout, then the only thing for voters to do is punish congress the way it was punished for the gulf war.

    Bryant Arms

     
  2. Charles Kinney

    I have not heard the latest on the Bailout modifications, but what little was brought up last night late was absolutely ridiculous. Mismanaged companies should not be bailed out, much less given money for other causes. If a bailout is viewed as necessary, it should be in the form of a loan. The loan must be paid back and the CEO’s bonuses should be taken. He should also be replaced.

    This CEO greed and pay thing is totally out of control and stupid. A CEO should not have his old friends on the Board. In short, please do everything possible to prevent this bailout thing from taking place.

     
  3. Russell Hemati

    Generally speaking, I’m of a “let it burn” mentality about the market as well, not that I am an anarchist – but merely dislike the idea of socializing losses. To be fair to the other side, however, I would like to point out something…

    The idea behind the financial rescue bill is not to “bail out” various banks. Instead, it is to buy up certain kinds of debt that lending institutions are _forced_, under current banking laws, to value at instant-sale prices.

    Let me give an analogy here: if I had a shipment of paper that I was going to sell (many tons of paper, let’s say) I might expect to sell it at a particular price. However, if the market conditions are such that the market for paper is dried up, I would just hold on to the inventory until the market turned around. The many tons of paper would sit in a warehouse and be valued on the books at the expected sell price minus the cost of storing it. However, if I was required, by law, to always report the value of the paper by the price I could sell it for RIGHT NOW, then my books go out of balance. I might have to sell it for an insanely low price in order to get it out of the warehouse. This is the situation the banks find themselves in. The mortgages have to be valued at their price RIGHT NOW, and since the market is a) flooded with properties, and b) the mortgages are often more than the value of the home, their value to sell RIGHT NOW is very low. Sometimes lower than the cost of building the house on that property (i.e., lower than the material cost of the structure).

    So, the government’s plan is to buy up these mortgages at a huge bargain – often lower than the material cost, but because the credit market has crashed, these banks will do ANYTHING to get the debt off their books so their books can balance. Remember, if their books don’t balance (or they have to keep rebalancing them in response to worsening mortgage prices), then they can’t borrow money for bonds, their insurance premiums go up, and on and on it goes. The government isn’t GIVING, their BUYING. And if it is like the 1987 S&L crash, they will make money in the process (that’s right, the “bailout” of the 1987 market crash was a net gain in dollars for the U.S. Treasury after 10 years or so).

    Buying up a mortgage for less than the material cost is a pretty safe bet. The government could outright _gift_ the occupant with 25% equity of _current_ house value and STILL make money on it. Not only that, but the bailout plan is voluntary for the banks. Some, like JP Morgan-Chase are doing fine and probably won’t participate. If a bank does participate to stay afloat, they have to agree to all sorts of new regulations on executive pay, etc… And best of all, if the Treasury makes money on this like they did last time, they have to distribute the proceeds back to the taxpayers that funded it.

    Ok, that’s my defense of their position. I myself am not a fan, but it is for theoretical/ethical reasons (probably similar to Daniel’s reasons). However, the bailout people have the practical/political high ground as far as I can tell. “Rewarding Greed” has nothing to do with it.

     

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