Wednesday, September 24, 2008

So...let's talk bailout

Despite all of our super-duper finance people telling us that this bailout is necessary, and if we don't get it the World As We Know It will end, I'm not buying it. After all, it was these people who, by and large, got us into this mess in the first palce.

The financial bailout of Wall Street (and other areas known for financial activity) is a colossally foolish attempt to stop the world from turning. As it would be with an attempt to stop the world, it's going to fail, for one reason or another.

Think of the world of finance as a balloon, and we have collectively blown that balloon up with Stupid. Then someone (with really big hands) squeezes on that balloon, and a part of it bulges out so far it's in danger of popping. That bulge is our current credit crisis.

So our someone pushes that bulge back in, only to have the balloon bulge out somewhere else. He grabs it there and forces it back in, and it bulges in yet another place. He grabs it there, but in his haste he squeezes too hard, and the balloon bursts.

Financial regulators, central banks and others the world over have been pushing the bulges back in for years--stagflation in the 70s, the S&L debacle of the 80s/90s and the credit crunch of '08 are simply a few of the squeezes.

Will the balloon pop this time? Who knows? But eventually, it will. And since we keep blowing in more Stupid at the same time we're pushing in the bulges, when it finally does go "Bang!", it will be a far louder bang than it would have been if it had burst earlier.

Personally, I'm in favor of allowing the markets to simply take their course. At best, they work things out with minimal pain. At worst, they work things out with considerable pain. However, if we keep papering over the problems (by, in effect, forcing the taxpayers to pay above market prices for below market securities), we will, at some point, reach a point where it can't be papered over any longer--and the financial markets will burst just like our balloon.

And the pain will be far worse than if we squeeze all of the toxic debt and foolish decisions out now.

Our best hope is that our politicians spend so much time arguing about how to lard this bailout up with a little pork for everyone that it simply doesn't get passed in time. At least that way the taxpayers don't get screwed any worse that they're already being screwed.

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