The Fed's Helping Hand
It's been a tumultuous week on Wall street. The Dow over two days dropped 700 points only to recover and finish the week with a small gain. What drove this roller coaster ride was a series of near financial cataclysms: The bankruptcy of Lehman Brothers, the near bankruptcy of AIG and the sale of Merrili Lynch to Bank of America. A week earlier the feds took control of mortgage giants Fannie Mae and Freddie Mac.
This looming financial catastrophe sent the Treasury and Congress scurrying for a solution and it came in the form of a $70 billion rescue package. A government entity will be created in order to warehouse all the bad debt on the books of these companies, similar to the Resolution Trust Corporation which saved us during the Savings & Loan scandal on the 80's. There are two schools of thought on the subject of bailouts: One side(congress) thinks this was the only option considering how intertwined these financial behemoths are with the global economy-leaving them to fail would cause a financial tsunami. The other side thinks that taxpayer money should not be used to bail out private corporations who create this mess themselves.
What do I say? The no bailout crowd makes a circular argument. If these companies fail, the taxpayer will end up paying anyway. These companies have tens of thousands of employees who could lose their jobs and end up in the unemployment lines. The economic fallout from a corporate colossus the size of AIG would be immeasurable. AIG has $1.1 trillion in assets and 74 million clients in 130 countries. Who would pay to sustain these folks without jobs or insurance for their assets? You guessed it, the same taxpayes. This isn't a pure capitalist economy nor has it ever been. Government intervention is certainly not the favored alternative however if one examines the options carefully then it appears to be the only logical one. It's a typical political catch 22: A bad choice and a worse one.
This looming financial catastrophe sent the Treasury and Congress scurrying for a solution and it came in the form of a $70 billion rescue package. A government entity will be created in order to warehouse all the bad debt on the books of these companies, similar to the Resolution Trust Corporation which saved us during the Savings & Loan scandal on the 80's. There are two schools of thought on the subject of bailouts: One side(congress) thinks this was the only option considering how intertwined these financial behemoths are with the global economy-leaving them to fail would cause a financial tsunami. The other side thinks that taxpayer money should not be used to bail out private corporations who create this mess themselves.
What do I say? The no bailout crowd makes a circular argument. If these companies fail, the taxpayer will end up paying anyway. These companies have tens of thousands of employees who could lose their jobs and end up in the unemployment lines. The economic fallout from a corporate colossus the size of AIG would be immeasurable. AIG has $1.1 trillion in assets and 74 million clients in 130 countries. Who would pay to sustain these folks without jobs or insurance for their assets? You guessed it, the same taxpayes. This isn't a pure capitalist economy nor has it ever been. Government intervention is certainly not the favored alternative however if one examines the options carefully then it appears to be the only logical one. It's a typical political catch 22: A bad choice and a worse one.
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