On the bus to school the other day, the busdriver and a woman passenger were weighing in on the whole bailout situation. Neither seemed to have an especially strong understanding of economics or finance, but I’m not sure John McCain or Barak Obama do either. But since everyone else in the world is throwing their two cents in I thought I would too. I’m not an economist, but I have considered reading “The Wealth Of Nations.”
First off, having crunched not a single number, I think the bailout seems to be a little higher than is necessary. Here’s my reasoning.
- The purpose of the bailout is to keep financial institutions functioning that, if they were to cease functioning, their would be a large negative impact on the U.S. economy (which would probably be pretty bad for both the San Diego and world economy’s). This is sound.
- The bailout should provide the minimum amount of money to allow this to happen, and only to as few institutions as possible (sorry Lehman Brothers).
- My assumption here might be off, but I would think that these institutions, run by intelligent people (who made some very bad decisions), could continue to operate if they were given a couple hundred million dollars.
Based on that thinking, it seems like we could throw a couple of hundred million dollars at a couple of banks/brokerages and the world wouldn’t end. Now if I was running said banks and brokerages, and I had friends in DC (which they do) I would try and get as much cash out of the government as I could. While, actually I wouldn’t, but I would expect some folks to, which would lead to a grossly inflated number. The Paulson Plan. The Bush administration does have a track record of more or less giving government cash to private firms they have connections at (see Haliburton, Iraq).
An idea pushed by the women on the bus that I have heard from more mainstream media is that the government should pay off some of peoples mortgages if they are going to give those Wall Street fat cats free money. The general idea seems to be that the normals should get a handout if anyone is. No one seems to mention that the people who are losing their houses made a bad financial decision too, they aren’t victims. I’ve heard the argument that these naive folks got talked into taking loans they couldn’t afford to pay back, but making those kind of decisions is what being a grown up is all about. You also get into trouble of deciding who gets mortgage handouts, peopel in no danger of defaulting shouldn’t be given cash, homeowners already get plenty of tax breaks, but it won’t seem fair if Cletus next door who can’t afford his home gets free cash to stay while Johnny Money bags has to keep going to work at his law firm everyday. If you give all homeowners cash, when some obviously don’t need it, why not give money to everyone? And that’s just silly. It’s a popular political idea, because homeowners vote, but I don’t see how it makes sense either for helping the economy or in a fairness point of view.
To close with a side note, if you google Lehman Brothers, the second link (excluding News Results which is really an ad for Google News) is Work at Lehman Brothers. I’m not sure that would be the best place to apply at the moment.