Why The Plan(s) to Bail Out the Banks Is Bad

Besides the obvious added debt the government (the taxpayer) will incur, there are two aspects of the plan(s) that reek like the crap that's creating it. As I understand it, Republicans are for one principle provision while the Democrats are for the same one Republicans are plus one more. These two provisions are as follows:

1) The government's bail-out (i.e. delivery of fabricated dollars backed by the "integrity of the government" or "Insert Eastern Country of Choice Here's" increasing control over America through the purchase of U.S. Treasuries) will give the government "contingent stock" in the companies. In other words, they will be able to own and/or exercise control over the company and may actually possess shares of the companies stock.

2) Relief/Debt Forgiveness extended toward individual property owners on the verge of foreclosing on their homes. This relief (likely made in the form of the government again printing monopoly money and paying it to the banks on behalf of said property owners) is made with the goal of halting the devaluation of so many of these securitized loans on the balance sheets of these banks (causing the banks to be required to obtain more capital to meet reserves and other regulatory requirements as they lose money/value). As more people "make their mortgage payments," fewer of the securities become worthless and thereby do not need to be written down.

Both aspects of this plan are BAD BAD BAD. The fact that Republicans are only on board with half of this absurdity does not excuse them from being completely incompetent. Democrats, you are simply out of your minds.

Provision #1 is garbage and very un-American and uncharacteristic of a capitalistic society (to the extent we remain so). The big no-no here is giving the government ownership in companies--for free. And that is a big "for free" because the money used to fund it isn't coming out of senators' pockets. It is, as aforementioned, spontaneously combusted in the secret laboratories below the Capitol. Need I remind us all that the small percentage of government expenditures that is not created in thin air comes from the taxpayers--so they get to steal our money to get eventual ownership in the largest financial institutions in the world.

While we're singing the tune of "government ownership" let's break down what that means: the government will likely (they say contingent on certain factors) own the majority of the companies they aid. What a strange concept to us as Americans! The government will actually own or possess effective control over these companies--meaning it will influence decision making and (gasp) potentially run the companies--and we all know how effective the government is at managing anything.

People should be enraged that the government may end up owning companies they should own (since they're all publicly traded companies and the general public owned or was able to own them through the purchase of stock). My guess is that the aid the government provides could dilute some of the ownership--which is why I say "should own" (people will still be able to own the stock). But they should be mad because the government has no hint of a decent track record when it comes to spending other people's money and managing business ventures in any sense of the word. Government officials are horrendously poor executors. Oftentimes they know nothing about the business they run (why do you think they got into politics? it's not like they were doing anything impressive in the business world). And we're all going to fund these politicians in their quest to control multi-national companies (through taxes). Didn't we already learn that communism doesn't work?

Provision #2 should make every person who hasn't yet been kicked out of their house furious. Rather than hold people accountable for their own mistakes (which I admit were in some cases fueled by commission-hungry loan officers and the government's inability to realize how ridiculous extending such credit was) we provide them with a figurative tourniquet as we save them from utter destruction by severing any potential for a lesson on responsibility or unchecked greed as well as severing the livelihood of the solvent, consistently paying homeowners through an implicit surcharge of their prudence. But, in the eyes of the Dems, we must do it to curb the foreclosures and thereby reduce the number of write-downs for the banks. So ridiculous. This "solution" takes us right back to the ills that created the problem in the first place: greed and lack of accountability.

The responsibility for the failure among these super-power banks, while it certainly rests in the hands of unscrupulous CEOs who continue to negotiate/demand contemptible severance packages in spite of the years of destruction and unbridled ravenousness, ultimately rests on the general public and culture of society. We have bred entitled, lazy, thoughtless, naive, and selfish babies. Average people, while they cannot be expected to know everything (and in our case, anything at all), must be expected to know their own limits--despite how hard a salesman pushes his product. We are in debt, the government's in debt, and our bank's are in debt. We are all to blame for this mess. And the worst part is the solution that has been proposed is just going to enhance these unfavorable qualities in the average Joe.

So what is the solution? I don't know. There obviously needs to be some sort of government involvement and aid or things will really spiral out of control (despite the free-market proponents' arguments in favor of an eventual market correction--remember, a partially regulated, partially free market can't be expected to behave like a free-market behaves--which has only behaved as such in theory). The problem is that we've got to learn our limits at the top and at the bottom of the barrel. We need to set up payment plans (as a government) to rid ourselves of national debt and we need to get budgets into the black. As individuals we need to pay down our own debts and learn to live without a few things. We need to punish corporate thieves and fraudsters but be careful with inventing too many new white-collar crimes. I strongly feel that some of the evils perpetrated companies only happen because consumers allow the opportunity to exist by virtue of their personal preferences, tendencies, and behaviors (this is the part where we as consumers can give them a metaphorical middle-finger by not buying into some of the crap they want to push onto us and games they play). Remember, if there is no market for crap, no one is going to provide it (basic economics). That said, we do need to bear down on corrupt misdeeds and corruption.

So those are my thoughts on the matter. I sincerely hope we can get this thing worked out. My career and some of my hobbies center around business and the capital markets. I have a passion for it and a personal stake in its success through my career and individual investing performance. I have hopes we can find the remedy.