Just Say No to the Bailout!
Sep. 30th, 2008 10:15 am![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
ellyssian... or ...
Why It was a Good thing the Bailout Failed, and Why it will be Bad when a Modified Version goes through...
"The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company.
"Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.
"In contrast, a bailout transfers enormous wealth from taxpayers to those who knowingly engaged in risky subprime lending. Thus, the bailout encourages companies to take large, imprudent risks and count on getting bailed out by government. This "moral hazard" generates enormous distortions in an economy's allocation of its financial resources."
~ and ~
"Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.
"Further, the current credit freeze is likely due to Wall Street's hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents."
-- both from http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/, emphasis mine
I was just reading an article in an earlier issue of Newsweek that advised investors not to be guided by their emotions; that tendency tends to make for more loss than profit. Funny enough, that emotion-driven behavior - fear, specifically - is what turns a mild blip of an event into an all-out catastrophe. In this case, it's like a multi-blip pileup...
Why It was a Good thing the Bailout Failed, and Why it will be Bad when a Modified Version goes through...
"The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company.
"Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.
"In contrast, a bailout transfers enormous wealth from taxpayers to those who knowingly engaged in risky subprime lending. Thus, the bailout encourages companies to take large, imprudent risks and count on getting bailed out by government. This "moral hazard" generates enormous distortions in an economy's allocation of its financial resources."
~ and ~
"Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.
"Further, the current credit freeze is likely due to Wall Street's hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents."
-- both from http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/, emphasis mine
I was just reading an article in an earlier issue of Newsweek that advised investors not to be guided by their emotions; that tendency tends to make for more loss than profit. Funny enough, that emotion-driven behavior - fear, specifically - is what turns a mild blip of an event into an all-out catastrophe. In this case, it's like a multi-blip pileup...
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Date: 2008-09-30 02:44 pm (UTC)