Bailing Out Investors Bad Decisions

The United States is economy is in pretty bad shape right now. The economy is in such poor shape right now that we must hand over at least $700 billion to the Treasury Secretary to purchase bad debt from Wall Street.

The reason many people say we need a bailout is to make up a string of bad decisions made on Wall Street. From what I understand the problem is that Wall Street firms continued to create securities consisting of worthwhile and worthless mortgages that eventually created convoluted securities than no wants any more. If no one continues to buy these securities, banks on Wall Street will lose lots of money, which it feared will create a credit crisis that will mean it will be more difficult for consumers and businesses to borrow money.

I remain unconvinced that this bill is a good idea. $700 billion is a lot of taxpayer money equal roughly the cost of Iraq war to date. The federal government does not have this kind of money to spend over a short period of time due to Congress inclination not to limit spending or raise taxes this bill will probably largely be financed through government spending which will push us further into an economic crisis. Sure the bill may not actually cost $700 billion, some people think the government will actually make money off the bailout but the bailout could alternatively cost more than $700 billion since 700 billion is just a figure basically made up by the Treasury Secretary.

The bailout goes against the way capitalism works. Capitalism is a system of economics based on profit and loss. Traditionally in capitalism, people who are more productive and make a profit are rewarded, the opposite side of the coin is that people have to take losses when they make bad decisions. The people who invested in mortgage securities whose worth is not clear made bad decisions. If you take away the downside of bad decisions, you will just encourage people to engage in riskier decisions without any regard to whether or not they will be profitable; economists call this moral hazard.

The House of Representatives did vote down the bailout yesterday but the bill is not completely dead. It appears as the bill will be reintroduced in the House of Representatives on Thursday after Congress returns from the Jewish holiday.

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One Response to “Bailing Out Investors Bad Decisions”

  1. Becky says:

    I have been terrified about the decisions our government has been making, concerning these bail-outs. I would like to loan them all the book “Deadly Decisions,” by Chris Burns!

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