Wednesday, October 1, 2008

Episode 3: Mission Failed


The bailout failed the other day. It seems it was a blessing in disguise.

I kind of/sort of see why some would call for a bailout. I am no economist, but it seems AIG’s failure would jeopardize the financial structure of businesses home and abroad, retirement plans for many Americans, and recall loans insured by them.

A bailout seems to absorb the damage cause by greedy corporate thieves rather than helping Americans damaged by their actions. By using taxpayer money, most of whom are innocent bystanders of this catastrophe, the government would give one man the power to allocate $700 Billion dollars as he saw fit. All of this of course adding to our $1 Trillion deficit. It all sounds like a film trailer to an awful movie in the end. Imagine if you will the voice of the late, great Don LaFontaine (aka the movie trailer voice):

“In a world, where Wall Street collapsed, and America feared for its economic future. In a time when confusion and terror reigned supreme. One man alone can save America and the world from Armageddon… HANK PAULSON! *explosion* Decisions are no longer renewable… WALL STREET MELTDOWN… Coming soon to a theater near you.”

With the bailout failed, it gives us some time to really think about the implications of the bill. As an American who is not an expert economist, the bill sounded incredibly confusing. This is a problem because our representatives are putting an incredibly expensive bill on the table that neither they or their constituents truly understood. Listening to the reasons both Ds and Rs rejected it, they seem to find the bill confusing as well. More importantly, it is a fundamentally flawed idea. No matter how you cut it, this bill rewards the greedy, corporate thieves, by giving them a second chance at survival. A bailout is in direct contrast to a free market system that allowed (for better or for worse

I whole heartedly believe in our free market system. It is the system that makes America the most powerful working force in the world. It inspires creativity, innovation, and low prices. When a company is successful in the free market system, it can become incredibly wealthy and influential. When it fails, the company dies and disappears of the market. Sometimes the owner can sell the company to someone else to develop an idea that still may have promise, so the he at best breaks even, or at worst is in a bunch of debt if there are no takers. This is the life cycle of the free market. Therefore, the bailout of AIG is not only in direct contrast of the free market system, but also of the quintessential republican ideology. AIG should suffer the same fate as Lehman Borthers.

Therefore, with a second chance to make the right choice it is essential that we do not pass the bailout. AIG needs to complete the natural process of a failed company. The truth of the matter is, no matter how Congress swings it, there is a chance that the bailout could fail, $700 billion is wasted, every American is drowned in debt, the stock markets crash anyway, and AIG still fails. This leaves us with the 3 solutions: 1) print more money to absorb or erase the debt (which will make the dollar bill worth less than peso), 2) enter a depression and hope somehow we can achieve economic growth (which will impact markets all over the world), or find a free market solution with government sanctions (which causes left and right bickering the results in inaction – see consequence 2).  

As for a free market solution, I think that various banks and insurance companies should band together and absorb the funds for retirement and redistribute those polices between them. Those who do should get some kind of tax credit or something of the like from the government. The government should go case by case and evaluated the economic situation of each person affected by a bum loan. It should either be restructured to rates that people can pay for, and the rest of the debt absorbed into our debt that a strong economy of the future will fix. A bailout is a national embarrassment and serves to undermine our own system and our worldwide credibility.

Moreover, the failed stock markets don’t seem to affect anyone outside the AIG bubble. Money in the banks are safe. You don’t have to cash out your bank account and stuff it in a shoebox. What did happen is banks would be nervous about giving out loans. And if that happens, it’s like a car salesman who is afraid to sell cars. However, I truly believe it AIG dies, and we approach the problem with a free market solution, justice will be served, and there will be no reason to fear giving loans, especially with proper regulation in place.

Barack Obama announced a plan to increase the FDIC insurance from $100,000, to $250,000. This would help secure money for American citizens, and help small business owners continue to operate. Most importantly, a major overhaul of the financial system is needed. A rush job bill will not do the trick.

Both Obama and McCain supported the bill. Both reluctantly I’ll admit. However, Obama has been proposing ideas for reform of the system all along, including policies of transparency (Google for Government for example), bankruptcy reform, taxpayer protections, and regulation of the market (btw- all provisions he called for in the bailout bill). Here’s why this will work. The free market system is like a game. And a game ONLY works when there are rules. Obama doesn’t want to let government get in the way of the free market, in fact, his ENTIRE economic and energy plan REQUIRES the free market system to work! So in creating a “large government,” he is calling for the regulations to serve as a playbook, so that everyone is playing the same game fairly, so everyone has an equal shot at success. His whole campaign is based on every American getting a fair shot.

This bailout issues is also what troubles me so much about McCain. He is going against his OWN fundamental principles. Why hasn’t he devised a free market plan? The republican base would LOVE that. And frankly, it’s the right call in my opinion. The reason is because behind closed doors, he’s trying to protect his Wall St. buddies from losing millions and going straight to the poor house or better, jail. McCain has not stood firmly for any issue on the economy. His deregulation ideology only serves the top 1% of the wealthiest people in this country. These are the people McCain is protecting. He truly is a maverick… unpredictable, unguided, and dangerous. There is a saying, if you stand for nothing, you’ll fall for anything…
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