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Monday, September 29, 2008

Bail-Out Plan Fails, For Now

I am so not a political person... and my views might be simplistic... but I'll say this - I'm really glad the government bail-out did not pass today. The way I see it, business is much like any ecosystem, meaning survival of the fittest! Lenders got too creative with loans, and too generous at the same time. Too large of risks were taken, and it's really simple: A bust will always follow a boom, eventually. Considering Las Vegas itself - we had to know this growth and prosperity could not continue on the path it had been on forever. We as buyers should know better than to bite off more than we can chew. But businesses take risks, and some fail, while the strongest and smartest will weather the storm and once again prosper. Some consumers spend wrecklessly, and sooner or later it will catch up with them. I don't see it as a benefit for our government to come in and bail lenders or consumers out - it sets a bad precedent. Let bigger companies swallow the small ones and let those who are destined to fail do exactly that. Let consumers deal with their own finances! If you don't read the fine print, I'm sorry! Yeah, my mutual funds are suffering. Yeah, I worry about losing my job considering the economy. We may weather some really bad economic years, but this country has done it before, and I'd like to think we've learned from those mistakes. Considering where we are, however, I'm not so sure. Does history simply repeat itself? How do you feel about the bail-out not passing today?


Ken said...

You aren't alone in that belief. Many people think that these companies must suffer the consequences. The federal government should not be in the business of providing what is essentially corporate welfare.

The "bailout package" had it's flaws. First, it did not address the underlying issue that caused the "credit crunch" - home foreclosures. The Treasury Department needs to take a look at what the FDIC did when they let IndyMac bank fail. They suspended all mortgage foreclosures and took a homeowner-by-homeowner look to see who could afford their mortgage, just under different terms. Second, I really think that while they addressed executive pay, a better way to handle it would be to require shareholders to review all executive pay packages.

This being said, it is my belief that the government has to do something. The behind the scenes banking system is almost to the point of seizing. Banks and lenders with cash is hording it, not lending it to other borrowers and other banks. People will soon find it hard to get a mortgage, car loan or credit card. Businesses will lose access to the lines of credit they need to operate and make payroll. That is why the government has to do something.

I am concerned that the Administration stuck it's head in the sand until we got to this point. Now, frankly, they are asking for a rush job on legislation that needs careful consideration. However, time is running out and something has to be done.

Angi said...

history and all is nothing but a series of repeats check out zeitgest on google video and you'll see what I mean.

Fred said...

Ken summed it up very nicely. It was the wrong plan hatched at the last minute with too many flaws.

The real issue now is the credit markets. They've seized up and it's becoming more difficult for businesses and consumers to get access to loans. Banks are jealously guarding their cash because they're experiencing so many losses in their mortgage-backed securities.

So, like Ken, I believe the government has to do something. I favor taking out the weaker banks and merging them with the stronger ones. When the Feds engineered the Citi takeover of Wachovia, Citi took on the bad loans up to a certain level. ($40 billion or so) That's the way I would prefer to move forward. Private capital should be involved first, not tax dollars.

Now, the government needs to figure out how to regulate the banking sector that shuts down all the Wall Street smoke and mirror derivative products that got us into this mess.