If the Powers That Be follow through with their plan to spend $700B dollars to buy up some of the bad debt that is dragging financial companies down, the net effect will be to bail the greedy and the stupid out of the consequences of their greed and stupidity.
This sort of dramatic rescue may make sense in the Grand Scheme that is international finance – who truly understands the forces at work there, if we’re to be honest with ourselves and one another? – but it makes no sense whatever in terms of the human factors involved.
The financial situation – not a crisis, yet – that we find ourselves in was fundamentally caused by two sorts of people: those who borrowed money they couldn’t pay back without a run of good fortune and those who let them do it in order to get their middleman’s cut. Providing the former with a bailout now simply rewards their financial incompetence (or willful stupidity), teaching borrowers exactly the opposite of what they need to learn. It remains to be seen whether the latter group’s malfeasance will be systematically punished as it should be, though I’m not holding my breath.
There’s a lot of high-sounding talk about Bernanke and Paulson and what financial geniuses they are, which would be all well and good if it were relevant. But the question that too many people aren’t asking is, “How much of this almost $1T will ever be paid back?”
…the problem is that lots of bad loans were made, lots of people made highly leveraged investments in those bad loans, and still more people bet on those loans by insuring them. The loans are bad. The mortgages are not going to be repaid in full. Housing prices are not going to magically shoot up 50% over the next 6 months. People gambled and lost…
Quite. Ever see the house take pity on a sucker in Vegas? Nope, but in Washington it’s a different story. The truth is that if the feds see half of our money returned on this deal they’ll be doing well. The rest is piss in a boot, like the billions squandered in Iraq.