When the "credit crunch" occurred, the Bush administration and the U.S. Congress bailed out arbitrarily selected failing investment banks (of which Lehman Brothers was not one). What was the reason for the bailout? How would the bailout alleviate the "credit crunch"? Why were some of the investment banks bailed out and not others? It's as if these Bozos didn't know what to do and randomly picked some things to do because doing something is better than doing nothing. In the end, we are $700 billion in the hole with nothing to show for it.
If they really wanted to alleviate the "credit crunch", they should have lent the money directly to those in the economy that needed the credit. The loans could be administered by local lending institutions for a nominal fee. The qualifications and conditions for the loans could be defined to minimize risk while maximizing liquidity in the credit market.
If there were no bailout for the investment banks, they would have been very motivated to sort out the "toxic assets" from the healthy ones and start down the road towards recovery. Now, with the federal bailouts in their pockets, these bankers are still sitting on their derriere waiting for some miracle to happen and we still don't know which loan packages are toxic and which ones are healthy. Yet, the Obama administration and the U.S. Congress want to throw away more money at these clowns.
On top of that, the Obama administration and the U.S. Congress want to do the same with the auto industry. Why shouldn't GM and Chrysler be allowed to fail? (Ford, during the congressional hearings, said that they didn't need the bailout but came along for the handout because GM and Chrysler were doing so.) Let GM and Chrysler file for Chapter 11 and reorganize, just like any other businesses that are in trouble.
The problem is that the U.S. federal government wants to prop up failing private businesses because they are perceived to be "too big to fail". There is not such thing as a business that is "too big to fail"!!!!!
A healthy free market demands that bad businesses fail and good businesses thrive on their own, irregardless of how large they are. A subsidized bad business is simply a cancer in our economy, sucking resources away from the healthy part of the economy.
There is, however, an ever more fundamental problem with our public policy, a broader problem than just our economic problem. It stems from the very character of the American pioneering spirit.
American public policy has always been to overcome the natural flow instead of working with the natural flow. We deem one part of the natural cycle to be bad and the other part of the cycle good; then we try to overcome the part of the natural cycle that we deem to be bad. Unfortunately, we really don't overcome that part of the natural cycle, we simply put it off. And when we do, the part, that we deem to be bad, accumulates until it breaks the dam.
e.g., Nature has cycles, a part of which has forest fires and the other part doesn't. We deem forest fires to be bad and we proceed to put out every forest fire that comes along. Unfortunately, when we do so, the undergrowth starts to accumulate and accumulate. At a certain point, the undergrowth accumulates so much that, when the next forest fire comes along, the fire is unmanageable because there is so much undergrowth.
Forest fires are not bad nor are they good. They are just a part of the natural self corrective process.
Why don't we stop trying to overcome the natural cycles of forest fires and instead allow the forest fires to happen so that the undergrowth does not accumulate so much that the forest fires become unmanageable? Why don't we stop people from building in those forest fire zones or at least impose more strict fire code for buildings in the forest file zones?
e.g., In preparation for hurricanes, we built dikes (levees) to prevent the hurricane flood water from overflowing into communities along the Mississippi River. Inevitably, the flood water would overcome the dikes (levees), ether by rising above them or by breaking them.
Why don't we stop trying to hold back the natural flow? Why don't we stop wasting money on building dikes (levees)? Why don't we, instead, accommodate the natural flow? Why don't we, instead, change our building codes for the areas in the hurricane zone? Require that buildings be elevated (perhaps on stilts) above the maximum expected flood level? Require them to be aerodynamics, allowing the hurricane wind to blow by the buildings.
We do the same with our economy. We deem the economic growth periods to be good and the periods of economic downturn to be bad. So we try to prolong the growth periods and extinguish the downturns.
Neither are good nor are they bad. They are both part of the natural cycle.
The economic growth periods are good because we make money. However, they also bad because, in the growth periods, businesses invest in riskier ventures and more number of risky ventures because these investments will yield much higher returns if successful. (They assume that their profit, in good economic times, will cover their losses in the riskier ventures.)
The economic downturns are bad because we don't make as much money. However, it's also good because it puts fear into the businesses that invest in risky businesses. The downturns rein them in from overconfidence in risky ventures.
So when the U.S. Federal government extends the growth period too long, businesses become dunk with confidence in risky ventures. The risks that they take become outrageous and the number of risks that they take becomes outrageous.
It is this public policy that got us here in this massive global economic mess. Yet, the Obama administration and the U. S. Congress insist on continuing to apply this very bad public policy by bailing out bad businesses, in essence, giving the green light to continue exercising bad business practices.
We need to put the fear back into businesses that don't seem to care if they are running their businesses well or not. We need to take away their safety net. A bailout is the exact opposite of what we need to do.
Let's replace this very bad public policy with a sound one. We need to allow the natural business cycle to occur. Do not prolong growth periods. Do not hold back downturns. Instead, we need to accumulate a rainy day fund during the growth periods. When the downturns come, the government will have the resources to provide unemployment benefits for those who are effected by the downturns. The unemployment benefits will include not only cost of living expenses but also tuition for worker retraining. (Economic downturns are usually the result of shifts in the economy requiring workers to move from one segment of the economy to another.)
We need to stop trying to suppress the natural cycle and instead accommodate the natural cycle.
Hey, don't take my word for it. Go read Genesis 41 to see the public policy that God recommended (through Joseph) to deal with the economic cycle (time of abundance and time of famine).
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