Government Bailouts

I don't see the benefits of complete deregulation. It has been researched and shown over and over that a complex market can not survive if only left to its own forces. If you care to know, there is a pretty interesting book called "Reinventing the Bazaar", and it is basically a brief history of markets. It is a good book (a tad on the academic side) that illustrates by real example why certain markets have failed throughout history. Some were over-regulated, but most were lacking proper regulation. Also, the concept of a "failed market" varies, but I digress.

Why would we allow these financial institutions to dig a hole so deep that we are now in a position that we either have to bail them out, or suffer an economic collapse? I understand that we don't want to regulate so many things that it hinders the success of corporations and small businesses. But do you understand what was happening? Without proper regulation in place each person or company was doing what was in their best interest, despite the effects it would have on the next person on company in the chain.

The entire process was profitable from top to bottom AND at the same time nearly everyone involved could pass along the risk to someone else. The mortgage brokers were pushing these insane, high-risk loans because they were being paid on commission. The banks were offering the loans because the underwriters were allowing them. The underwriters were allowing these high risk loans because they were passing them along by bundling them up and selling them. Fund managers taking on these risky "assets" because their pay structures were based on short-term performance. Investors were buying into these funds because of the phony ratings that were given to the packages.

So when it all fell apart, the brokers had made tons of money, some banks got out unscathed, and the fund managers retired wealthy (after 3 yrs of work). The cat is out of the bag and the investors are trying cutting their losses now but the financial brokerage firms are out of cash, thus insolvent - and the underwriters are experiencing a large spike in foreclosures to go with all of this. So the government steps in and puts nearly a trillion dollars on the line to try to keep the country from imploding into the next great depression.

A few simple regulations in place would have put restrictions on lending practices and none of this would have happened. Everything can't be left to the market unless we are willing to take the bad with the good. Unfortunately the bad could mean collapse.

And by the way, from a more broad perspective, the economic boom we had wasn't real. Sure we all got bigger houses, bigger cars, and nicer toys - but it was all on borrowed cash. There was no real prosperity as we now know. It's not like our country was actually producing anything. In fact, we are producing far less than we were 60 years ago. We have converted into a services economy... and that's bad because services are expendable (as we see when jobs get exported). So where did all the cash come from, then? Take a look at the national deficit. We borrowed it from other countries by selling billions and billions worth of bonds. Oh yea, we went ahead and printed a lot of it too.

Why print more money? Seems foolish right? After all, it obviously will create tons of inflation if you just crank up the presses every time you need some windfall cash. Well think about what inflation does to debt. If the value of the dollar plummets to near nothing it becomes pretty damn easy to payoff your outstanding debts. This is why it is considered common knowledge among economists that the federal government secretly likes as much inflation as we can handle. One of the worst things that could happen is to be gravely in debt and experience massive deflation of our currency.

All we have to do is put a little regulation in place that doesn't allow people to act so irresponsibly that they crash the entire economy. If we get back to financial responsibility and build a mature economy, we can get back to being prosperous. I understand that McCain wants to keep people calm and give the impression that the economy is "still fundamentally sound", but it's not. I hope he understands the real issues and is simply playing a political game - surely this is the case. We need to produce things again, we need to quit borrowing money and we need to regulate some things, otherwise we will continue to dig the hole until it reaches China.