Riot. That is my advice to my American neighbours. A good ol' social uprising. It appears to me that that may be your best option in order to straighten out your country's current "credit crisis".
I know what you're saying, "Brian, violence isn't the answer. There is a bailout coming from the government, it will make everything better".
It's true, violence isn't the answer. Neither is a huge cash bailout. Hell, even former speaker of the house, and predominant republican Newt Gingrich feels that the bailout is "unamerican" and tantamount to "financial socialism". See Lee-Ann Goodman’s article
Socialism, American-Style.
Back to my rant...
So let's take a rudimentary look at the root of the issue. Large financial companies failed to do their due diligence and started giving out mortgages to many people and corporations that were unqualified. They did this because they saw other financial institutions were doing the same as well as packaging their own high-risk loans with other mortgages and selling the investment packages to other investors, often group investors *cough, mutual funds cough. The group investors however, didn't know that they were buying into these high risk loans because they trusted certified professionals to manage their investment funds. So the trusted professionals, those who essentially run the large financial companies, continued to buy the loan investment packages while financial institutions continued their laissez-faire lending practices. All seemed well.
The American economy then slows a bit, as the economic cycle inevitably does, and some people start to default on the mortgage. Then some more people default. When the people default on the mortgage, the profits of providing a mortgage are no more, effectively lowering the financial institutions revenue. This whole scenario starts to snowball and all of a sudden Fannie May and Freddie Mac go under and a bunch of rich white guys start to panic. A few more companies go belly up and then the lenders tighten their grip on available credit, effectively reducing other large, non-financial institutions purchasing power because they now have limited access to large sums of cash via credit. This eventually leads to our current situation in which huge financial companies are crying at Washington's door, asking for a handout from the tax payers.
Give me a freaking break.
When the working poor of the United States knocks at the White House door, asking for a handout in the form of universal health care or a reduction of tuition, the government's selective hearing fails to recognize the rapping at the door.
It is clear that, especially under the current Bush administration, the gap between the have and the have-nots in America is huge and likely going to get larger before it gets smaller. This bailout is a perfect example of the government caring more for their wealthy business friends than they do for the people who voted for them. $700 billion to the corporate fat cats, not one red cent contributed to ensuring the healthy living of all the American people.
The bailout is like putting a band-aid on a stab wound. Ineffective and artificial.
The bailout fails to attack the heart of the problem. The lax regulations of the financial sector that led to the current economic crisis. Sure the government can bail out the financial sector now, but who is to say that, come the next boom time, the same renegade lending practices won’t continue?
It would be better to have the institutions fail than to hand them this diamond encrusted crutch.
If the institutions fail, there will be a rocky period. In my opinion, that is a given. That being said, the upside of their failure is that new business will grow from the dust, likely, with more prudent management. It will lessen the leverage enjoyed by the larger lenders (AIG for example) and therefore, open the market up to more competition. If I correctly remember what I learned in Political Science 101, more competition is directly correlated to lower prices for consumers.
My American neighbours, I really do like you. It might not sound like it sometimes, but I appreciate you so much. I mean, who else are we Canadians going to sell our crude oil, hockey, and softwood lumber to? But I am afraid that you, through your elected representatives, are about to make a bad mistake. I think it is going to blow up in your face like an M-80 in the hand, except with more dire consequences.