Wednesday, September 17, 2008

Economic Mess

One of my friends asked me for my take on the recent government
takeovers and the general market mess. I'll repost it here:

I'll use an ecology analogy. These big financial institutions are
kind of like plankton in the ocean. Everything else relies on them.
They form the basis of the entire food web. If they die off, the
entire system is in danger of collapsing. The worst case scenario is
that you would no longer be able to get any loans, use any credit
cards, write any checks, withdraw any money from the bank, or collect
on insurance claims. That scenario is highly unlikely, but there
would be problems on a smaller scale.

Basically, the government is trapped. Nobody wants to get involved in
this; they already refused a bailout once. Also, the term 'bailout'
is misleading. All of the stockholders and management are being
punished for their bad decisions. What they are really doing is
bailing out the rest of the financial system. They are protecting
people like you and me who have money in the bank and bought

It is the equivalent of arresting a drunk driver and locking him in
jail for a while. It costs money to keep him in jail, but you do it
to keep him under control and prevent other people from getting hurt.
It is only a 'bailout' in the sense that it uses tax dollars to stop
the drunk from killing himself.

If you want to read a more in-depth article, see:

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