Recession Bailouts

In the wake of the major economic crisis that arose in Fall 2008, the US Federal Reserve initiated a series of financial bailouts to wall street firms including Bear Stearns, Fannie Mae and Freddie Mac, AIG, Citigroup, and Bank of America, and to auto makers such as GM and Chrysler. The rationale for these bailouts was that these organizations were too important to the domestic and international economy to fail, and therefore we, as a country and participant in the global economy, had no choice but to give them the capital necessary to get them back in the black. In addition, the Emergency Economic Stabilization Act of 2008 was passed, giving the federal government the ability to use up to $700bn to purchase toxic debts and stimulate the economy. Stimulation would come through a two-pronged recovery. First, stabilize the economy the short term by trying to stem the tide of unemployment and encourage consumerism, and second, a series of long term investments that would create a more sustainable economy and sound infrastructure in the future. The concept of investing money in the future of the country is great and I definitely support that, but handing out billions upon billions of dollars to corporations because they are too big to fail is foolish to me.

This process doesn't allow for capitalism's Darwinian process of natural selection and survival of the fittest to occur. Without this, the "free hand of the market," one of favorite buzz-terms of proponents of capitalism, ceases to exist, and capitalism is no longer capitalism. According to political pundits and financial experts, during the eight years from 2000-2008 under the Bush Administration, the financial sector saw less and less federal regulation, allowing an economic bubble to grow in the real estate market and artificially low interest rates set up the current credit crunch. These factors contributed to the massive collapse of the NYSE average, inducing several 700+ point drops, and the subsequent economic terror that ensued. Since the stimulus package was passed, we've seen the majority of the sky-is-falling, financial fear quelled, which has helped the largely psychological aspect of the stock market to give the American public optimism about our predicament. In addition, the majority of analysts believe we've seen the bottom of the stock market with the Dow Jones Industrial Average now above 9,000, with few days resembling those back in September and October. Despite this, with US unemployment at 9.7% as of June, increasing .6% since May on a collision course with the 10% milestone, and with US public debt at $11.3 trillion, America's economy is still looking very troubled with the problem having no solution providing instant grafitication, which has become one of the pillars of American culture and one of the leading contributers to the economic meltdown itself.

Looking at the problem further, an interesting question to ask is what are we saying as a country when we say these companies are too big to fail? The Obama Administration promised change, change from the old, the entrenched, and the status quo. Obama's my dude, but I really wish he came on TV in the wake of the wall street collapse, in his calming, assured demeanor to say, "We've got ourselves into a gigantic predicament through lack of regulation, dogmatic faith in invisible hand of the free market, and our excessive lifestyle of over consumption and materialism. There isn't an easy solution to this, this is going to hurt and we're going to need to scale back our quality of life to return some equilibrium to the economy and the American way of life in general." With the huge amount of political capital and positive energy behind his campaign and election, he could have appealed to people's rational side and gone through a step-by-step explanation of what happened and how it happened, what they were going to do to fix it, and what they anticipated would happen as a result. Instead, the majority of Americans are confused about the mystery of how the bailouts were supposed to work, and why these companies, who have done terrible jobs managing their investments (and are supposed to be some of the best and brightest individuals our educational system has to offer), are receiving more and more money from us to stay afloat. There is still a definite air of apathy towards the political process, and I think people in general have so much on their plate as it is, its become really mentally taxing. We don't have all the time or the energy necessary to research everything and stay informed with all the breaking news, and frankly nor should they. This would probably to more harm than good, more anxiety and stress than it would reassurance and security. But I think the bottom line is people want things to work and things to make sense, and the system certainly wasn't working, and the bailouts certainly didn't make alot of sense.

There's a Chinese proverb that says, "One generation plants trees, the next generation gets shade." I think this is the way we need to look at our approach to solving the recession, with specific regards on how to avoid or diminish the negative aspects of capitalism for our children and children's children. We could move to Sweden if all else fails.