CNN Money ran an opinion piece this week called “Be ticked off – but get over it.” :
“Americans are very angry about the proposed bailout of the banking sector and Wall Street…and with good reason. There should be outrage. We should all be disgusted that the government was forced into this situation. I’m infuriated that it came to this.
Of course, we should cap executive pay, which was obscene at many financial firms, immediately. And we should make sure that the CEOs, CFOs and other big wigs that drove their companies into near ruin with overleveraged bets on risky mortgages should not get big severance packages.
But make no mistake. The alternative that many CNNMoney.com readers seem to be calling for – i.e. let all the banks and Wall Street crash and burn – is not viable. In fact, it’s incredibly short-sighted.
So once the blind rage subsides, people will hopefully take a long-hard look at what the government has proposed and come to the realization that doing nothing to rid the nation’s banks of all the poisonous mortgage assets on their balance sheets would be far far worse.”
Unfortunately, for the American taxpayer, getting mad is a realistic by-product Wall Street and banking firm’s of the excess and mismanagement of the mortgage market.
Single-minded greed and obstinate faith in high return has led our economy and liquidity to the brink of collapse. It mimics the general consumer outrage toward the mortgage originator. While the products were available and you could offer exotics to your customer, were they necessarily a wise long-term solution? Wall Street and the GSEs courted millions of dollars of investment on the short-term ROI, but as you can see now, the long-term wisdom and consideration was virtually non-existent.
Getting even. While it satisfies some visceral need for justice, in the end game, revenge will just be displaced to the taxpayer. If we fail to act, the taxpayer will pay with the possibility of not only a recession by a depression-like economic event. If we do act, we are rewarding those that leveraged my financial security at the hands of a dividend to people that I don’t know. So Joe Citizen is hosed either way….
The questions are: how did the entire system come to the brink of collapse within “a couple of days” without anyone taking pre-emptive action? Does our financial regulatory system only know how to react to crisis rather than address systemic issues that imperil the entire economy? Can we trust these guys to do the right thing? Can you revamp the entire financial system in a weekend of number crunching and planning? Is that “fast-track” plan sustainable, feasible or even appropriate for success?
While the free market is one of my favorite topics, is the market really free when the government can play a hand at falsely deflating interest rates, fudging the values of economic indicators and then bailing out those who fail miserably? How does the “free market” reward disastrous mismanagement with extravagant compensation packages? The free market shouldn’t have training wheels…however, in the interest of our self-protection, the government needs to regulate in proportion to the potential impact that these charlatans and fools can have on the average citizen’s income, pension etc… If they want to have that kind of pull, well then they should pay for it like the rest of us do with increased personal liability OR just limit their ability to grow so large and become “too big to fail.” It’s like dealing with anything…your children, your career… if you want to hang with the big boys then you have to be able to handle the consequences… if you can’t, then you need to return to the baby pool.
For now, we are stuck with this debacle. Any way we address it will be expensive. The bulk of that expense will be borne by the taxpayer… how much is yet to be seen. Letting the economy collapse is not a good idea… but allowing such unfettered greed to just find a new avenue (MBS today = the junk bond of the 80s) for transactional greed is worse.
