|
Blog |
|
Libertiny Financial Personal Finance |
|
Taxpayer Bailout for Wall Street 2008 September 22 © 2008, Libertiny Financial LLC
It all started with my 2008 March blog entitled “Bear Stearns—Government Hypocrisy.” Click on www.Libertiny.com to read this and all of my Blogs for free.
Under pressure from our government, J.P. Morgan Chase was asked to purchase the failing Bear Stearns. Lots of guarantees from the federal government helped to close the deal before the Asian markets opened on that March morning.
I said it in 2008 March and I’ll say it again: It’s all hypocrisy on our government’s part. After all, America is a capitalistic society. While it’s legal to make unbelievably bad management decisions and screw up, the consequence in the United States of poor decision making: Your company will likely go out of business. And it should go out of business.
Apparently President Bush, Ben Bernanke, Chairman of the Board of Governors of the United States Federal Reserve, and President Bush’s United States Treasury Secretary, Henry Paulson, don’t believe in capitalism or the consequences of actions for that matter. They subscribe to a type of socialism that bails out large companies when their management team screws up.
The 2008 March J.P. Morgan Chase/Bear Sterns deal set the precedence for what has become the most appalling series of bailouts. And “we the people” are being given the very rushed opportunity to pay for all of those mistakes.
What Happened? Starting with Bear Stearns and working their way through mortgage giants Fannie Mae and Freddie Mac and then American International Group (insurance) the government bailouts have continued.
What They Want To Happen? Now Bush, Bernanke and Paulson want to help major Wall Street financial institutions like Goldman Sachs get bailed out as well and avoid the failure of Lehman Brothers or the rushed sale of Merrill Lynch by turning them into traditional bank holding companies.
How is This a Bailout? Goldman and similar financial institutions will now have access to Federal Reserve funds while maintaining their traditional advisory services and other services such as commodities trading (in the case of Goldman). If this weren’t enough, the U.S. Treasury plans to buy $700 billion of failing mortgages or mortgage backed securities from these same Wall Street financial institutions, in essence making tax payers the bank for bad mortgages. It’s a potential win-win-win-win for financial institutions. And tax payers get to foot the bill.
An Example: Say that you owned a company that earned money by lending people money. You’ve made many mistakes and have leant people who you should have known couldn’t pay back their loans to you. (We’ve all done small versions of this when we lend family and friends small amounts of money—and find out that they are unable to or won’t pay back their loans). In the case of your business, this group is large enough that without their repayment, your own company will go out of business. For a regular firm in a capitalistic society, your company would end up going bankrupt and you’d learn a painful but valuable lesson. In the Bush/Bernanke/Paulson socialist world, the government will not only allow you to continue your business, they’ll reimburse you for the bad loans. And they’ll open up a new avenue for you to borrow even more money under lower interest rates. You won’t have to change a thing. The benefit for you: You can screw up again on a much larger scale!
In a short 3-page document developed during one of the frequent “let’s get together and bailout another financial firm weekends”, Treasury Secretary Paulson (ex CEO of Goldman Sachs) writes about how a simple, quick-fix is needed. We’ve all heard this line before—when there’s serious trouble that has built up over many years, fix the problem as quickly as possible so that the troubling details are discovered months if not years after the fix has been implemented.
What Needs to Happen? Whoa! The point of our government is to govern on behalf of the people. You know, all of us who are suppose to pay for “Hank’s Weekend Bailout Plan.” This is exactly the time when the U.S. Senate and the House need to put the brakes on this process, review all of the details and end the plan by letting the firms that have performed poorly go into bankruptcy—just like you and I would if we screwed up financially.
No more bailouts. No more government sponsored or assisted mergers.
Outcomes: Will the stock markets tumble? Yes. That’s the risk of investing in the stock market and why you make more money (or should) over the long-term when investing in the market.
Will people lose their jobs? Yes. That’s the risk that you take when you work for any company that has poor management.
Will the U.S. markets recover? Yes. We did from the Great Depression and came out of it with much more resilience and hard-earned knowledge—the silver lining to this dark cloud as well.
What We’ve Learned: 1) I’m sitting on the sidelines and not investing in the stock market. Why? The U.S. presidential election cycle is predictable only in that it’s volatile proceeding and following the November election. Click HERE for my article and research graph. 2) I’m sitting on the sidelines and not investing during most if not all of 2009. Why? I’ve traveled throughout Europe, the Middle East and Asia during 2008 and asked challenging financial questions. The answer: The world is clearly following the U.S. into a recession. Therefore, our own recovery will take longer than the Wall Street pundits have claimed. 3) Finally, if you’re still getting your investment advice from stock brokers, advisors or analysts who work for firms that are getting bailed out in one way or another; my advice is to completely ignore them and find yourself a good independent financial advisor. After all, if a broker, advisor or analyst’s firm can’t even keep their own financial houses in good shape, what do they know about another businesses’ finances? It’s like taking personal financial advice from someone who has declared personal bankruptcy—there’s no value in listening.
|
|
Buy |