If the financial system is on the brink of collapse then you may prefer to blow $700 billion rather than allow the collapse. If the investment banking system entirely collapses it doesn't just take itself down the drain. It takes your 401K's with it. It takes pension plans with it. It takes investments by towns with it. It takes the ability of many non-financial businesses to simply do business with it.
Doing a bail-out may allow pieces of the system to fail slowly rather than dramatically. If they fail in a slow, controlled manner then they won't have to depress the assets of the rest of the system. Morgan-Stanley and Goldman-Sachs were both profitable and solid companies. They beat earnings estimates in the most recent quarter. Their stock, however, is down over 30% as a result of the failure of other large investment houses (Lehman Brothers). As you take apart Lehman Brothers, if you flood the market with their assets you depress the value of other investment firms and you can put firms which are still able to operate out of business in the process. If that happens you may be looking at the collapse of the entire sector.
I think that's something you want to avoid.
I am not saying that I believe the government's plan is a good plan. I don't know enough about it to have an opinion. I don't know enough in general to really formulate a useful opinion even given the details. And I don't think enough details of the plan are even solidified yet to say.
Try to rescue the system, punish the people who are responsible for its failure, not just limited to the people running the organizations but the people in government who let it happen as well, like the people at the SEC who decided it was acceptable to waive regulations that would have not allowed the major investment firms to take on too much risk. If not rescue, at least attempt to put it to rest in a controlled manner.
The consequences of the system failing are a lot more dire than the individual businesses involved collapsing.
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momijizukamori
no subject
Date: 2008-09-22 15:35 (UTC)Doing a bail-out may allow pieces of the system to fail slowly rather than dramatically. If they fail in a slow, controlled manner then they won't have to depress the assets of the rest of the system. Morgan-Stanley and Goldman-Sachs were both profitable and solid companies. They beat earnings estimates in the most recent quarter. Their stock, however, is down over 30% as a result of the failure of other large investment houses (Lehman Brothers). As you take apart Lehman Brothers, if you flood the market with their assets you depress the value of other investment firms and you can put firms which are still able to operate out of business in the process. If that happens you may be looking at the collapse of the entire sector.
I think that's something you want to avoid.
I am not saying that I believe the government's plan is a good plan. I don't know enough about it to have an opinion. I don't know enough in general to really formulate a useful opinion even given the details. And I don't think enough details of the plan are even solidified yet to say.
Try to rescue the system, punish the people who are responsible for its failure, not just limited to the people running the organizations but the people in government who let it happen as well, like the people at the SEC who decided it was acceptable to waive regulations that would have not allowed the major investment firms to take on too much risk. If not rescue, at least attempt to put it to rest in a controlled manner.
The consequences of the system failing are a lot more dire than the individual businesses involved collapsing.