03.26Economy 01
So about this bailout…
Personally, I think it’s one of the stupidest things I’ve ever heard of.
Little though those poor souls suffering from “Bush Derangement Syndrome” (a truly terrible affliction which causes the afflicted person to believe that every problem in the world is the direct fault of George W. Bush, regardless of logic or evidence) would like to believe it; the roots of this current economic crisis date back to the Clinton administration. It was Clinton who repealed the Glass-Steagall Act, which prevented the coupling of investment banking and lending, and thereby prevented lenders from allowing sub-prime mortgages.
Actually, it started even further back, in the Carter years, but discussion of that isn’t strictly necessary. Suffice to say that Carter added many regulations to the economic system, sending prices sky-high. When Reagan came into office, he killed most of those regulations, bringing prices WAY down, and ushering in years of prosperity. When Clinton came along, although he reenacted a lot of Carter’s unnecessary regulations, he actually got rid of the important one from way back in 1933, (after that nasty little business we call the Great Depression). That combination led us to where we are today.
In layman’s terms, repealing this act allowed unscrupulous corporations and banks to lend money to people who never should have been allowed to borrow it, so they could buy houses they should never have been able to afford. This way, when they can’t pay their bills, the bank forecloses and takes both the money and the house.
For a more detailed—and more entertaining—explanation, please see http://www.businesspundit.com/sub-prime/
Now, when the economy began to wobble a few months back, and people began to realize that they were losing money, everybody and their mother rushed to withdraw all their money from the banks. The banks don’t have that kind of liquid funds, so they couldn’t pay out and started to go under. The stock market fell in tandem, what with everyone trying to cash out so they can hide their greenbacks under their mattresses, and that has brought us to where we are today.
That may sound horrible, but what you have to realize is that this is how laissez-faire capitalism is supposed to work. Some people take risks, some don’t. Some of those risks pay off, but some don’t. BB&T, for instance, is not having any particular financial difficulties because as a company they stayed well away from sub-prime lending. Their spreadsheets, I can assure you, are clean.
In theory, as the other banks who took stupid risks lose money and start to go under, banks who still have money (like BB&T) would buy them out and take their customers, and then have to compete with the new generation of banks (in essence, small businesses) that would arise.
This is not going to happen anytime soon, however, thanks to this idiotic bailout.
The only way that companies are going to fall enough to be bought out is for them to literally start running out of money, but instead, the federal government, in all its [lack of] infinite wisdom, is pumping 1.197 trillion dollars ($1,197,000,000,000) of your money into the system, keeping these struggling banks alive so they can run themselves into a shambles YET AGAIN.
Explain to me, please, one way in which this is a good idea?
In conclusion, even I can’t deny that some regulation is necessary in order to maintain public order and protect the common man from unethical corporations; however, too much regulation is even worse than too little…and just look where we are now with too little…
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