As an average American, it is hard to think through America’s financial crises with any confidence about facts, causes, and effects. Professional economists and academicians can endlessly debate the macroeconomic effects of a $700B bailout, so how can I possibly know what I think should — or should not — happen?
On one hand . . .
- Tighter consuming lending practices will help end the systemic problem of Americans buying things on credit they can’t afford, from houses to cars to consumer goods. This may result in significant opportunity costs for GDP growth, but at the same time, could result in a healthier base economy. I like the idea of people with a 500 credit score and $40,000 a year in income being denied credit.
- I believe in laissez-faire economics, and in turn, think properly managed banks like Northern Trust and JP Morgan Chase and Bank of America should be rewarded for their stewardship by being the only players left in a market. The Wachovias and Citibanks and Washington Mutuals should be allowed to fail. Individual consumers should be protected by the FDIC, and investors in these companies should lose their investments. Likewise, Goldman Sachs and Merrill Lynch should be rewarded for surviving, while Lehman Brothers and Morgan Stanley are torn apart for scrap.
- The government bailout of A.I.G. was a coup for American taxpayers. Buying 80% of the company for little more than loan guarantees was a superb move by Paulsen et al., and in the end, will wind up being a very profitable move, benefiting the government and taxpayers.
On the other hand, I don’t know the long term effects of the government not bailing out the major lending houses, resulting in the bad mortgage debts and derivatives staying on their books. Could it result in a downward spiral into a depression; a perilous economic situation caused by a single sector’s woes? Importantly, I do not think many people in America know either, and I am convinced most of Congress does not. This week is one of the few times I will ever feel sympathy for members of Congress because they are being asked to fix something they cannot begin to understand the workings of.
I do not know what the right answer is. So it is hard to fully digest the newspaper articles I read because as informed as I am, I still feel so much in the dark.
Perhaps you could reflect on POGO’s quote “we have met the enemy and they is us”!!!
Why do you characterize yourself as “average”; the three specific comments on the economy in your post indicate above average intelligence!!!
All of us depend way too much on the “professionals”; if you look and listen closely to them presently; they have that “deer in the headlights” look!!!