It Continues

September 17, 2008 at 4:55 pm (Banking Crisis)

Despite the ridiculous recent rebound of the dollar (coordinated by central banks in Europe, US, and Japan), which caused everyone to sigh with relief because “The US is going to recover from recession sooner,” it seems there is just too much rot in the system to magically wave away.

While it’s ultimately good the Federal Reserve didn’t bail out Lehman Brothers, they should have refused to bail out Bear Stearns, Fanny Mae, Freddy Mac, and AIG.  Yes, I know none of the above were called bailouts — they were called “conservatorships” and “guarantees” and other nonsense, but they all required billions of dollars of taxpayer funds, and will require more in the future.  Now the FDIC is tapped, and that will require more taxpayer funds too.

The argument for bailing all these places out was that it would be “too destructive to let them fail.”  In other words, they have made a killing over the past several years overextending their leverage and making risky bets, and their investors have pocketed that money, but now that their bets have failed, their destruction wouldn’t just destroy them, it would destroy TONS of the greedy investors who overextended themselves.  And it’s okay if some rich people lose money, but not tons, because… well, what would we do without all those rich people?  Therefore, the taxpayer needs to cover their losses.  A fitting phrase is, “privatizing the gains and socializing the losses.”  And when the FDIC taxpayer funds aren’t enough, they’ll have to raise taxes to get more, or at least increase our national debt, and have the next generation(s) foot the bill.  Jim Rogers was correct when he called the recent actions “socialism for the rich.

Why not take back the profits and packages from the directors or investors of these failed companies to pay their debts?  Why not let them go into bankruptcy?  That would be fair.  If you or I make a bad investment, we owe the government and we don’t get bailed out.  We have to declare bankruptcy.  Only the rich people; the people with the advantages, the ones who don’t need the money to eat — only they get bailed out.  And who funds the bailout?  Those of us who do have to worry about having enough money to eat.  Sad.  And utterly unfair.

Well, we saw this coming.  And there is nothing we peasants could have done.  There is always gold and silver, but, as recent events have proven, those aren’t a sure bet.  Maybe it’s simply due to the effects of destruction of credit and therefore deflation.  Maybe it’s due to the fact that when a bunch of investment banks get free (lower than market interest) loans from the Fed, they can simply short gold and silver (selling gold and silver you don’t physically have, promising to buy an equal amount at some distant point in the future, driving the price down) instead of using that money to loan each other. In fact, you can actually sell more gold and silver than even exists.  Funny the magic of Wall Street.  Either way, there is no simple answer.  I think the article today that summed up the situation best is this one.  Exerpt below:

“”So now the U.S. Treasury is bailing out AIG with conservatorship and an $80 billion allowance for their newest member of the dysfunctional family. What’s next? Oh, I already know, the Big 3 have asked for a gov’t check, and before you know it, Disneyland will be asking for an allowance from the gov’t!”

What next?  It’s anyone’s guess.  Other countries are having it worse than us.  Russia’s stock market collapsed yesterday.  Each new day will likely bring surprising events.  These are the times for appreciating what you still have.

Today’s article of doom: having to face the unreal possibility of losing your bank deposits.


1 Comment

  1. rain dogs said,

    aahh living under the rule of thieves.

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