There are a number of things that are being said in the news / press / world of blogs that I need to be addressed.
The Stock Market is not the economy
Without a doubt, the stock market is wild right now. The press gets excited when the wild swing and destruction of capital takes place, but it has happened a number of times in the past – it’s all part of capitalism. It happened in 2001, in 1990, 1987, early 80s… and on and on and on.
Corporate scandals, poor business practices, and just plain dumb luck will lead to situations like this all the time. Currently, the financial industry is in disarray but this does not equate to an overall bad economy. While economic growth is not historic highs it is also not contracting. As of now, the United States is not, officially, in a recession.
The collapse of AIG, et al., is not a giant conspiracy
I want to know if people are still taking their medication. More and more there are stories / commentaries that the bailout of AIG is due to the company being a front for the government or that we are heading into a financial dictatorship.
The reason AIG was given what amounts to a structured bankruptcy is quite simply. Their debt, the bonds they offered, was considered to be some of the highest-grade investment vehicles on the market. Just about every major company in the WORLD owns said bonds and if the assets suddenly became worthless, the potential for failures of companies worldwide was very real.
The $700 Billion dollar rescue is the right thing
The creation of a Resolution Trust is the right thing to do and creates a bottom for the mortgage industry – the mortgages are now set with a value established by asset managers, backed by the government, and create a tradable security for the investment market. Furthermore, as the real estate market improves the government will be sitting on A HUGE asset bank that goes right back into the treasury.
This is all caused by poor regulation, greed and policy
Yes, policy created this current situation, but it wasn’t Bush policy – it was Clinton policy. President Clinton pushed extensive changes allowing lenders to distribute and fill “questionable” loans, his legislation – essentially – allowed the sub-prime mortgage industry to start.
In 2002, Ron Paul called for change due to the financial risk, in 2003 President Bush recommended a regulatory overall to prevent a collapse and in 2005 John McCain warned of a financial collapse but NO one acted.
Who failed to act? Congress.
Bankers utilized the “loose” regulation and got greedy. They started to issue loans to individuals who could not afford their loans and, next thing you know, boom there is a crash.
This is life…
The stock market, the economy and life are full of ups and downs. What the government is doing right now is attempting to provide stability to the financial and credit markets, and as the economy as a whole. Is it what I want to see in a free market society, no? Is it the right thing to do, yes.
Related posts:
- The financial crisis we face…
- Nouriel Roubini warns about the current stock market
- The Stock market is partying like there is no recession…when does the hangover kick in?
- The inauguration, the stock market and other random and unrelated things.
- You think your presidential candidate should be a leader during this financial crisis? Well, here you go.