Saturday, September 20, 2014

What if we didn't bail out the banks in 2008?

In the months leading up to the collapse of our banks, there were many warnings of what was to come without changing course. The people in charge of our biggest banks were smart people and they knew what they were doing (or they wouldn't be there), but refused to listen to good advice and had very little oversight from the government or the markets. When their errors in judgement finally came down to losing big money, they found allies in government who would help them at the expense of the taxpayer. They held a gun to their head and said, "Bail us out, or we'll pull the trigger!"

When the government bailed out the banks, they made it easier for the banks to hold onto to their property rather than selling it at fire sale prices (Iceland figured this part out early). Letting them fail would have been better for the economy and that would have tipped the scales back to the 99%. But the one percenters would have none of that. They wanted government insurance (that everyone else bought for them, without their consent) for their failed investments. They had unclean hands.

What does that mean? Well, they expected to loan money out to everyone else, sit back and collect a check while keeping inflation low, keeping wages for labor stagnant, and expecting people to make payments on mortgages that they could not afford once the ARMs went up. This was done on a very large scale and went on for more than 30 years. It's like they were trying to find more and more ways to make money without working. Their plan worked for awhile, but then in 2008, it stopped. Too many foreclosures due to adjustable rate mortgages adjusting. No could adjust to a mortgage payment that went up by $1000 a month on a jumbo loan without a commensurate wage increase.

If the government had refused to bail them out, yes, there would have been hard times, but the wealthiest among us would have had to work again instead of living on government bailouts. Without the bailouts, the banks would have had to sell off their assets as soon as possible to recoup their investments, or what remained of them. This is how capitalism is supposed to work. If you make a mistake, no worries, sell your assets so that you have some money left, even if you take a bath while selling them, you will still have money.

But the so-called capitalists didn't want to lose any money. They felt it was not their fault that they lost money and expected the government to help them out. Without government help, the tide would have turned and our economy would have come roaring back because people could buy property on the cheap. Oh, well. Live and learn. That's why we're here, you know, to learn from our mistakes.

Unfortunately, the same people who were bailed out didn't get to learn from their mistakes and many of them are still alive, still in power, and exercising that power daily. A true capitalist accepts the risk of his investments and is willing to take a bath when he makes a mistake. The men and women in power today are not true capitalists for they have committed the sin of socializing risk while privatizing profits.

There was a time when we could say that America was a capitalist country. Not anymore. Maybe that's not such a bad thing if you live in a Conservative Nanny State.
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