Nationalizing the American Economy

With the federal government bailing out businesses left and right, it seems appropriate that the ramifications of such market interference be discussed. While such stop-gap measures are initially greeted with relief by the public, it will not take long for the reality to sink in. As with most other “shortcuts”, the current trend of governmental take overs of publicly traded companies are no more than band-aids. They look good in the wrapper, but solve none of the underlying problems.

The definition of insanity

Insanity has been defined as the act of doing the same thing over and over,expecting a different result. We now have an AIG bailout, in the form of federal ownership of 80% in exchange for 85 billion taxpayer dollars. Taxpayer dollars that the fed doesnt have,I might add. The government currently has a hefty deficit, hence, no spare 85 billion in change lying around to buy stock with. The printing presses at the federal reserve are working overtime to pay for this latest poorly advised move.

Lets look at AIG for a minute. They chose to participate in risky investments, no-one forced the insurance company to become an investor in high risk vehicles. That decision was made by the board. Real estate, CDO’s, investment banking have been on a downhill slide for nearly two years. They didnt see the problem and take action to protect their stockholders by paring down their exposure? Why not? A prudent investor or trader keeps up with the trends occuring in his portfolio and adjusts as needed. There is absolutely nothing wrong with exiting a bad trade and waiting out a downturn. Believe or not, cash is also an asset. Just ask Warren Buffet, he sits on tons of it just waiting for his opportunity to knock.

AIG’s problems are symptomatic of an industry that has been coddled by infusions of tax dollars “for the greater good” of the economy. Is it in the patients interest to have a placebo when the need for surgery is readily apparent? What good can come of throwing money at the result of bad decisions when the root problem is not addressed first?

A Trend Toward Nationalism

For whatever reason, the federal government has chosen to nationalize the financial sector of the American economy. Wether the intention is to stave off economic turmoil or to simply grab more power by controling the financial system, the end result is the same. Governmental ownership and control of a public sector industry. When Bear Stearns was bailed out, with taxpayer money, did it stem the downturn in the financial sector? Certainly not, as is evidenced by the next series of ever larger handouts to companiees whose own mistakes put them at risk.