Middle America got what it Demanded and the Dow Drops 777 Points! NICE WORK!

Middle America got what it Demanded and the Dow Drops 777 Points! NICE WORK!

I am not sure why but people ask me about current events; maybe it is because I am an information junkie, maybe it is because I work in the financial world, or maybe, just maybe, it is because I always have an opinion!  Well lately, I have been discussing/arguing with friends, family members and have even been quite vocal on other much more popular blogs (link) – while I hate the idea of a bail out by the government it needs to be done, and today’s failure to do so and the subsequent crash in the market only proves my fears.

First thing first, why am I against the necessary bail out? I think the main reason I am against it, is based on my political views, rather than the actual Bill itself.  Politically I like to think I am a center Libertarian.  The definition  libertarian which is covered by the FAQ on the party’s website www.lp.org

What is a Libertarian?

Let’s start with Webster’s definition:

libertarian: A person who upholds the principles of individual liberty especially of thought and action.

Libertarian: a member of a political party advocating libertarian principles.

Libertarians believe in, and pursue, personal freedom while maintaining personal responsibility.  The Libertarian Party itself serves a much larger pro-liberty community with the specific mission of electing Libertarians to public office. Libertarians strongly oppose any government interfering in their personal, family and business decisions.  Essentially, we believe all Americans should be free to live their lives and pursue their interests as they see fit as long as they do no harm to another. In a nutshell, we are advocates for a smaller government, lower taxes and more freedom.

When asked I usually say, “I dislike that republicans ignore civil rights, and I deplore big government and taxes.”  Sums it up I think.

More importantly, why is this bail out necessary? Lets identify what the Bill was and what was not.   Disclaimer: I have not read the 110 page bill but the gist from what I have read was it created an entity to take the allegedly toxic investment vehicles made up of mortgage notes and mortgage derivatives.

  • The bill does not place any kind of a hold on outstanding mortgages.
  • The bill does not “solve” the golden parachute issue – just places limitations on Government Sponsored Entities.

So, everyone needs to drop the whole, “Why should I have to help those that took too much of a mortgage” – you aren’t (yet)!  Similarly, I hate the golden parachute argument.  An employment contract is nothing more than that – a contract!  The thought that the government could come in and dismantle that kind of contract absent fraud, just because some people lost money in the stock market, is plain and simple – sickening.  Take your emotions out of it and really think about it?  Do you want the government interfering in contracts?

Not so elequoently paraphrasing Alan Greenspan in his book, The Age of Turbulence, stated that the protection of free contracts is one of the things that makes America great.   So now, that we know what we are talking about (and what we are not) why is it necessary?

If you can lets ignore the table below, and the drop in your retirement and non-qualified investment accounts:

BIGGEST POINT DROPS IN THE DOW

Date

Close

Point Drop

Percent Decline

Sept. 29, 2008

10,365.45

777.68

-6.98%

Sept. 17, 2001

8,920.70

684.81

-7.13%

Apr. 14, 2000

10,305.77

617.78

-5.66%

Oct. 27, 1997

7,161.15

554.26

-7.19%

Aug. 31, 1998

7,539.07

512.61

-6.37%

Oct. 19, 1987

1,738.74

508.00

-22.61%

As stated, before providing that terrifying table, lets discuss what will happen if we don’t fix our current and very real problem (minus the fickle market).   This is a crisis of liquidity and credit and right now no one is lending to anyone because banks aren’t sure which one of their fellow banks will fail next.   The bail out bill as I understand it would be analogous to someone getting rid of all their credit card debt…wouldn’t you as a lender (all banks are lenders and borrowers over and over) be more likely to lend to me (another bank) so I can lend more and on ward our economy goes!

I’d love to hear opposite arguments!

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