500 Billion Questions

So another fed bailout hm? $500 billion you say? Acquiring mortgages that no one else wants? Yeah?

I’m going to go against a lot of my very, very smart capitalist friends and say thank God. I know that a government acquiring immovable, illiquid assets might not be the best thing in the world because they’re basically spending tax dollars on shit we didn’t’ tell them to buy. It’s like your broker saying, “Hey I’m going to take your $200k and buy only penny stocks. Sound good?” The only difference here is that this might just save us from a much more serious recession than we were already in.

In the first couple hours of trading banking stocks are up in astronomical levels (JPM hit +$6.05 at 10 AM which is absolutely insane) and the DOW is up at least 300 points. Now all this could change in a matter of minutes or hours so I’m not betting the farm on this, but the early returns from the historical bail out are positive.

But see this is a blog, so what would a blog be without some completely unwarranted opinionated conjecture from the bloated ego of the writer? Exactly.

So really what has happened here is that all the “free market” advocates forgot to remember (and yes I know how ridiculous that phrase is) that capitalism is supposed to be based on small firms competing against each other while increasing competition and actually driving profits to zero because that’s what real competition does. So what happens when people say a firm is “too big to fail”? It means capitalism has screwed up and has let a company break the barrier of competition. We stop being price makers and start being price takers.

I’ve said plenty of times that a company like GE is simply too important and too big to ever fail. Then the stock slipped to $23 (it’s up to $26 today) and I realized that capitalism was right, the innovation and advance of people is based off small firms because that’s how competition becomes fierce and forces out certain positive aspects.

What does this have to do with the mortgage crisis? Well not necessarily that much. Except by the fact that predatory lenders are a product of the “too big to fail” phenomena. Mega banks stopped lending because they weren’t sure about secure returns and therefore smaller banks couldn’t get loans to help themselves and then people started not being able to pay off mortgages and the chain reaction kept going and going.

Alright that’s an extremely blunt synopsis of what I understand about the sub-prime crisis. I know that plenty of people will disagree with me because the government stepping in to prevent ANYTHING is antithetical to true capitalism. But, hey, sometimes shit happens.