Thursday, September 18, 2008

Recession or Depression?

I found this article, which sort of helped me learn a little more about the Wall Street mess.
The Bubble Economy

I won't even pretend that I understand the financial implications of what's going on in the economy right now, or the steps that led up to the "sudden" falls of these financial empires.

From what I've understood, the fall of AIG would have a drastic impact on many nations, not just the US. For instance, almost the entire fleet of airlines would be grounded due to lack of insurance. The fall of AIG would be devastating to the nation, especially those insured through them, and in that sense I can see the benefit to the government using taxpayers' money to bail them out. (I didn't really look into how the fall of Fannie Mae and Freddie Mac would have affected the economy, so I'm just referring to AIG right now.)

BUT. Besides the general "unfair" attitude since the government has been picking and choosing which companies to bail out (why not the Lehman Bros?) - and the basic fact that they needed bailing out because the company was irresponsible and gambled with money they didn't have - was it really a good decision for the long run to bail out these big companies?

Is the existance of a single company with this much control over the world's economy a good thing?

Supposedly the government's bridge loan will force the company to sell off some of their branch ventures and the senior management has already been let go which will lead to restructuring, but why would they change their M.O.? They've already discovered that they are so important to the economy that the government will save them from their risky/greedy business practices.

I also don't understand how the Bush administration is responsible for all the things gone wrong in the recent economy, since what I've read says the lending crisis is fallout from deregulation of the mortgage industry, which started in the 1980s and got approval from both parties in Congress.

Chech out this article - The Origins - and scroll down to "And it All Started With Deregulation."

Normally I have the typical Republican view, laissez faire, which is that the government shouldn't have to regulate business practices and doesn't need its nose in every part of our lives. But if the government decides not to regulate an industry but then steps in to save greedy investors and not-so-smart borrowers, why not regulate it from the start? Either "protect" the economy from the start or let the natural cycles evolve, but don't jump in and out!


Alright, enough political rants. I'm not sure I succeded in doing anything besides confusing anyone who read this even more!

No comments: