The Grad Voice

Did we really need a bailout of firms complicit in over-leveraging of the Great American House of Cards? Or is it okay because there will be a little more oversight this time?

We got into this mess because of an over-reliance on the wonders of speculative stock bets by the Titans of Wall Street who were working for greed, rather than the public good. Take this little nugget, for example: the first bailout bill that failed was for $700B, then they COMPLETELY reworked it from scratch, and still ended up with a $700B price tag. Does this strike anyone else as strange? Well, it should. The foxes entrusted with guarding the hen house have no idea what they're doing. On September 23rd, a Treasury spokesman explained how they arrived at that number, "It's not based on any particular data point," they told Forbes.com. "We just wanted to choose a really large number." Well, THAT explains it…

Plus, when has a government price tag ever been too generous? Remember when Bush's chief economic adviser, Larry Lindsey, was fired back in 2003 for suggesting that the Iraq invasion could cost up to $200B? And they say irony is dead.

When politicians on both sides of the aisle were advocating that pensions and the like should be able to play in the stock market, it was in everyone's best interest, because the market was going up, up, up. But now these investments have been exposed for the Ponzi schemes they are, and the public is collateral damage. Retirement accounts were invested based on short-term financial models built on highly leveraged assets, rather than in bonds (and other stable long-term investments) that help build and create tangible things that can be used for years to come (infrastructure, government investment in renewable technologies, etc.).

The investment banks/insurance firms have been hitting home runs for eight years, and now they have been called out for juicing. We are right in the middle of the financial version of the Mark McGwire Effect. For those unfamiliar with baseball, McGwire was America's favorite son as he swatted his way towards the home run record back in 2000 (Oh, what simpler time!). Following allegations that he was using steroids, the next two years were marked by a significant drop in production. When called before Congress to testify on the scandal, he said he didn't want to talk about the "the past." Sound familiar?

Those in the House and Senate who voted against the bill are concerned about the government having too much control over the market. "It's Socialism!!" But since financial transactions based on credit were created, there has been a regulatory environment in which the market can operate freely. Examples include the SEC, Federal Reserve, shareholder rights, etc. The key is creating a system that ensures that investments are made for the long-term, while allowing entrepreneurs the freedom to create jobs, invest in R&D, and put profits back in shareholder pockets, just not outrageous ones. (See: "ExxonMobil, Profit in 2007")

Optimistically, what we're headed for is likely not a depression, but perhaps more of a realignment and contraction of our economy. Pessimistically, all lending will cease, more houses will be foreclosed, unemployment will rise to 20%, and we're back to pre-WWII America. Hey, there's your solution right there. Invade Iran!

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