Tuesday, October 14, 2008

Where Do the Motives Lie?

I am not a fan of the bank bailout, I believe that has been established. However, I believe I am even less of a fan of it now.

The problems run deep. First, when the government buys up shares (the government holding stake in any private company is enough to worry me, but more on that later) it will effectively inflate the share prices on the stocks they buy up. And then, of course, how long will they hold those shares for? And what happens when they do (if they do) finally sell them? Will they put a glut of shares back on the markets - thus causing the stock market to crash again - and what, maybe we can write up another bailout scheme?

But wait, I'm getting ahead of myself. The question that remains is how are they going to buy these stocks? I'll tell you how, it's by printing more money - read this as: increasing the abundance of U.S. dollars in the world - and what does that do? It's simple, the dollar that has already grown so weak, becomes even weaker - with more money in print, it becomes worth less over the long haul. So then they do buy those shares back (at a time later to be detailed?) and fine, the dollar will go back up, but as I said previously, the stock market will crash again, so what came first here, the chicken or the egg? Somehow, some way, the government is doing the free market a disservice.

Let me forget about all those technicalities, however, and move into something much more frightening - the government is growing too powerful. It is no longer the voice of the people. Think about it, the government is buying shares of stocks in private companies - do you know what that equates to? It means the government, our United States government will have OWNERSHIP stake in these PRIVATE companies. What could be worse than that? Now there is talk of them potentially buying up shares of General Motors (GM) - and what will that do exactly? Fine, preserve jobs in America, yet, isn't the government a proponent of outsourcing? If they truly wanted to preserve American jobs - send the Mexicans and other illegal immigrants home - but of course, that would "cost too much" and is "impractical", right? Yeah, because $700 BILLION to bailout private companies is chump change.

Back on point - I read today on Yahoo Finance that $250 Billion is presently in the works to buy up shares of stock from leading banks, quoted as follows:

"Nine major banks will participate initially including all of the country's largest institutions, he announced, in a move that sent stocks soaring on Wall Street.
Some of the nation's largest banks had to be pressured to participate by Treasury Secretary Henry Paulson, who wanted healthy institutions that did not necessarily need capital from the government to go first as a way of removing any stigma that might be associated with banks getting bailouts."

Stop and examine this quote for a moment and lets highlight some key phrases:

1) "Some of the nations largest bank's had to be pressured to participate" ... excuse me? So the government is pressuring banks to participate in this scheme, whether they want to or not? That seems to be adding more power to the government and the role that the government was supposed to play in this bailout.

2) Henry Paulson "wanted healthy institutions that did not necessarily need capital" - so now, not only is the government "bailing out" those banks that are nearing collapse (if not for the government intervention, as they'd like you to believe) but now they are buying shares (ownership) of "healthy" banks that don't "need capital"? Okay, you lost me again - if this bailout is supposed to be used to HELP those institutions from COLLAPSE - why pump the money into 9 of the largest banks who - by phrasing of this article - may not even NEED the MONEY? Seems again, the government is overstepping their boundaries - and increasing their power even further.

So naturally, what does this mean for us, the taxpayer? It is simple, there is nothing we can do about it. The government (the all-powerful wizard of Oz) has spoken, and we have no choice (in this democracy) but to accept the government's decisions that are meant to "help the average citizen," of which, I am still missing how this bailout helps the little guy, especially now that the taxpayer's money is going to "bailout" completely healthy institutions that aren't even in need of the capital injection.

When baseball players get "capital" injections it's called steroids, and it always comes with a side effect - I can only imagine the side effects we are going to feel from this bailout. Either the government will do more harm playing with the free market - or they will grow far too powerful, more powerful than our forefathers ever planned for the government to be. The process has started, I wish there was some call to action that could stop it now.

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