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September 20, 2008

Bailing out America's Big Banks

George W. Bush announced yesterday that the United States will bail out America's big investment banks (who collectively have lost hundreds of billions of dollars on bad mortgages) and the American taxpayer will pay the bill. He basically wrote a blank cheque to the American investment banks and all their bad deals.

Lest we remind people, these are investment banks. Privately owned and privately funded. If they make bad financial decisions and their stocks crash maybe they should just be left to die? Why are we rescuing big corporations with huge financial bailouts at the expense of the taxpayer?

Its relatively simple: Panic.

Several days ago the stock market was crashing and it looked very dire, possibly on the verge of a depression. Bush has been asleep at the economic wheel so long its no surprise his answer is to just throw money at the problem.

But will throwing money at the problem really solve anything? Lest we forget this is the result of a credit problem in the United States.

Americans have too many mortgages, car loans, bank loans, student debt, credit cards, etc. Almost everyone in America owes people money, even the supposedly rich on a regular basis have leveraged their finances or property in some kind of debt. It is this huge debt load that set off the mortgage credit crisis, the crash in housing prices and the resulting credit crisis in American banks.

America's National Debt has a similar problem... huge budget deficits under the Bush Administration has pushed it to $9.7 trillion, which has to eventually be paid back in taxes. Those private banks debts, thanks to Bush, are now going to be public debts to be paid off by the American public.

Why?

So Bush's buddies in the banking industry won't lose their collective shirts. The crashing stock market was so close to collapse recently it would have demolished America's investment banks. Everyone working for those banks would have been fired and the bank stocks would be worthless. They potentially could have even had a run on their banks with everyone withdrawing all their cash and investments.

That kind of scary stuff makes people panic. Everyday Americans would have been fine, but the big investment banks, everyone working for them and everyone with investments with them (usually the rich) would have been screwed.

Imagine if it had collapsed? America would have suddenly had a lot less rich people.

So instead we had a bailout, keeping America's rich people rich, and passing the cost on to America's poor people in the form of taxes.

Wow. Just wow. Its like the complete opposite of communism. This is capitalism gone wrong. Tax the poor, give the money to the rich.

We should all be stunned and stupefied right now.

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