Now that the investment banking industry has taken a plunge, the government, with the urging of Treasury Secretary Paulson, has decided to bail them out, sending a resoundingly disconcerting message to the public, while simultaneously placing the investment banking world above and beyond the needs and troubles of everyone else. Allowing them to conduct business relatively free from impunity, only to jump in and save them after they have taken advantage of said freedoms is not what I would call fiscal discipline.
Not only is the creation of this welfare for millionaires program difficult to grasp, but the estimated 700 billion being used for it is nothing short of staggering!
For the sake of scale, allow me to compare it to some areas of the 2008 US budget:
-This bail out is more than the cost of every social program the country has for this year, combined!
Including; the Department of Health and Human Services, the Social Security Administration, Department of Education, HUD, and the Department of Labor....just to name a few.
-This bail out is double the combined amount of every operational expense the country has this year.
Including; the Treasury Department, the cost of all government personnel, the Justice Department, the State Department, Department of Homeland Security (at a time when threats of terrorism are prevalent), NASA (at a time when we have been sending rovers to mars at a pace faster than Carl Lewis could run the 100 or 200), and the cost of maintaining the three branches of government!
-Finally this bail out is more than half the size of our entire yearly military budget (at a time when we are engaged in two wars)!
Money does not grow on trees. This money is not going to come from the wallet of the very same executive that just cashed a 10 million dollar check from the very same bank being bailed out......it's coming from the guy in Michigan making 60,000 dollars a year working at an auto plant! In addition to his expenses for raising a family, he now has incurred an additional financial responsibility; bailing out some guy in a pinstripe suit 2,000 miles away who decided to partake in fiscally irresponsible transactions.
The primary excuse and reasoning for the bailout is to restore confidence in this country's economic system. Well what kind of confidence does it inspire when we decide to carelessly dole out monies we don't have to PRIVATE businesses that have acted so carelessly?
What message does this send to every financial institution in this country?
Take all the risks you want, if you succeed, all the power to you, but if you fail - we'll make the tax payer bail you out?
Proponents of this move will say, this action is needed to stabilize the markets. They are right....if you want to stabilize the markets for a week, then this is the action you take. However, what happens the week after that? or the month after? When people realize these financial intuitions didn't really recover on their own, rather they are only around today because of a new governmental program that I like to call BCWP, or the Big Corporation Welfare Program. It is a very dangerous precedent to set and a very frightening message to send.
I would like to think my brother and sister-in-law are two of the best parents I know, as a result, their two daughters are two of the most well behaved children I know. Their secret? love and discipline. If Adina or Shoshana were to take expensive toy dolls and smash them on the floor, I could assure you the discipline employed by their parents would not come in the form of giving them more dolls with which to smash.
....perhaps it is time the lawmakers of this country learn a thing or two from the parents of this country.
1 comment:
I feel that I am qualified to respond to your last post because I have spent most of my career as an investment banker. Your characterization (not simply yours but all media as well) of the government response to the financial meltdown as a bailout is a misrepresentation of the reality of the situation. Bear Stearns and Lehman Brothers paid a hefty price for their excess.
First the shareholders. They paid by the fact that their stock became virtually worthless. That is in fact the proper and only way for owners who were reckless to pay. (since they did not commit fraud, imprisonment is not appropriate). Secondly as far as the employees and the management, they also were left with a total destruction of their savings. All high level employees are paid the vast majority of their compensation in stock. There is also a tremendous amount of pressure internally not to sell their stock. Any sale of their stock is known to management and management itself cannot sell their stock without the public knowing. Therefore employees, including CEO Fuld had the large majority of their net worth destroyed. Not to mention that most of them lost their jobs in the worst job market for bankers and traders in memory.
As far as AIG is concerned, the shareholders and management also had the value of their stock eviscerated and the government lent them money at onerous terms for the shareholders and conversely extremely favorable terms for the government.
Historically all government "bailouts" have proven profitable for the government and this will prove more profitable than most.
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