What's the number one reason we don't negotiate with terrorists? Because if we do, they will realize that their acts of terrorism will result in what they want - whether it's a seat at the table for a negotiation, the US out of Saudi Arabia, or and end to freedom (because, of course, terrorists hate freedom). So can someone please explain to me the logic behind committing $700 billion+ to a bailout of a financial services industry that got themselves into this hole is any different? By doing this, we are setting a terrible, terrible precedent, just as we would by negotiating with the bad guys. To illustrate this, I will pose a hypothetical. Let's say that Some Terorrist Organization (STO) had the capability to inflict economic damage on the US in the form of financially destroying several of the top financial institutions in the country. (And let's not consider, at least for this post, that China holds enough US debt to do just that). Let's also say that this terrorist organization is demanding $700 billion by the end of this week, or else they will pull their economic trigger. What are the odds that anybody in the government would consider that proposal? Now, I ask you to please explain to me how this situation is any different. Employees at numerous levels in these organizations, from the lowliest analyst right up to the CEO, got themeselves into this mess by taking unnecessary and short-sighted risks. Now they're crying foul and saying the economy will implode if we don't come up with this bailout-slash-ransom.
Why, exactly is this being considered? Yes, I fully realize that there are severe implications to letting this all unravel, but there are implications with the terrorist-negotiation policy as well. Sometimes, people get shot. That sucks, but paying the bastards off will just give them an incentive to do it again. Here, people will lose their jobs, and the economy will suffer, but who thinks the economy's not going to suffer with an extra $700 billion of government debt? Who thinks the country is awash in good, high paying jobs? If anything, this bailout is going to lengthen our period of economic distress - much like slowly removing the bandage, it seems like a good idea up front, but at the end of the day, you're better off just ripping it off, and being done with it.
There are two key points here that I've seen in other sources, but have not seen put together:
1. Rewarding anybody, or anything, for inappropriate or overly risky actions does not have a positive result. Ever. There's an unending list of examples of this. If your dog poops in the refridgerator, do you give him a treat? If I die skydiving, and that's a banned activity on my life insurance policy, should I expect to be paid out? Absolutely not! Rewards for these types of behaviors will only serve to reenforce the behaviors, which is the last thing we need right now. Two, five, ten years from now, when this has all blown over, we want people who are in positions to go down this path again to say "Wait a minute, this might be good for us in the short term, but long-term it's a path to the dark side". The absolute last thing we need is for their thoughts to be closer to "Hey, what's the worst that can happen? The government cuts us a check? Let's do it!"
2. Various media outlets are saying that the $700 million dollar hit is going to "come out of the pocketbooks on main street." Come on now, let's be realistic - that money is coming from China, in the form of US Treasury Bonds. This creates further leverage for the Chinese government, as well as a significant additional amount of debt that will need to be serviced for years to come. Seven hundred billion dollars ($700,000,000,000 for those of you who like to see the numbers themselves) compounds awfully quickly. How can any future presidents be expected to lead us back to fiscal responsibility when we are saddling them up front with stupidity like this? That also does not add in the potential inflationary impact that this debt bruden would have, which is far beyond the scope of this post.
Finally, I can't recommend enough that everybody read Ron Paul's article on CNN.com today. In general, I agree with some of Dr. Paul's views, and frankly think he's an absolute loon on some others, but this article is spot on. His thoughts about propping up the value of these securities, instead of letting them be sold at market value, could not be more accurate.
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