Thank you Matt for posting this.
Anybody who's read my blog in the last week can probably tell what side of the fence I sit on as far as the bailout bill currently before Congress and the Senate. I'm not just flatly against it, I'm angry and pissed off. Angry, enough that I've probably made at least 100 phone calls, and faxes to various Congressmen, Senators, and other government officials in the past several days. Come to think of it, that's about the same number I made in the weeks following the Bear Stearns bailout.
Now here is why
I'm one of the many people that saw this disaster coming, not three months ago, not a year ago, but I first started to put the pieces together way back in 2003. The more I learned about not just mortgages but derivatives and the leverage occurring in our financial system for more it bothered me, but at the same time I said to myself, "it can't really be that bad". The people on Wall Street are smart, they wouldn't create something this utterly idiotic. Of course later I realized this monster was not accidental either, just as Enron wasn't an "accident", it was a scam on a gigantic proportion.
Then when the first ripples of the sub-prime crisis hit in early 2007 with the failures of companies like New Century, I popped my head up again and said, this is really happening. At this point I began spending A LOT of time following the credit markets very closely, watching as one domino after another fell exactly as predicted.
As totally terrifying as it sounds the events leading up to this are almost identical to the events that lead to many of the worlds great financial crisis, The Great Depression being the most notable, but also Japan's "lost decade" as another example. As these events have played out government officials and regulators have practically followed the exact same playbook on how to make the crisis 10x worse. Instead of forcing leverage out system and rapidly putting the firewall regulations in place to prevent a systematic event, they've instead allowed the system to further leverage up, and reduced regulation. This has been happening at a frightening pace over the last year, in a desperate attempt to paper over the problems facing us, and hope that they go away. Can we not learn from history?
You can not solve a problem by applying more of the cause. It's akin to giving a continuing to give a heroin addict another hit to make him feel better, when in reality he needs to go into detox or will eventually die of his addiction. It's as simple as that. Yet on more than a dozen occasions in the past year the Treasury and Federal Reserve have attempted to solve the crisis du jour by administering this extra hit of heroin, and proclaimed the problem was on it's way to being fixed.
The bailout in front of us is just another hit of heroin, a massive one. It will do NOTHING to solve the underlying problem. While it may provide a short term high, it won't help the long term situation. We need to go into detox now, before the ticking bombs in our financial system blow up. This detox will be really, really painful, many more Wall Street firms will go under, our economy will go through a deep recession, huge amounts wealth will evaporate. But you know what, the bailout won't prevent this either, it will just add on yet another layer of misery to main street.
What this bailout will do?
Face it the financial train is off the tracks, and no matter how hard we want it to we can't simply throw money at it and put it back on. What we can do is focus our effort on moving things out of the way and minimize the collateral damage. Instead this bill is a method by the pig men of Wall Street to throw as many taxpayers in front of the train as possible, hoping to slow it down before it hits them. It is a looting operation by the banks of the US taxpayer plain and simple. It is being sold by fear and frankly the finance industry is trying to hold the American people hostage. Sorry I'm angry, I see through the smokescreen and I'm not going to sit by and take it.