Tuesday, October 21, 2008

Speaking of Bailouts

The French writer and aviator Antoine de Saint Exupery wrote the Little Prince, which was published as Le Petit Prince in 1943. In the story, the king claims he is powerful enough to order the sun to rise and set. He could, however, only exercise this power at certain times of the day.

Obsession with control may only be the illusion of control.

You can “plan” things to happen. No matter how grand you scheme, no matter how intricate your plans, you may still not accomplish anything beyond what would have happened in any case. Believe it or not, I am still obsessing over the bailout legislation.

Congress worked hard to pass this bailout legislation, a large-scale bailout of Wall Street and a few lucky bankers. Congress, the President and the Commerce Secretary justified this legislation, which was obviously rammed down Main Street’s collective throat. They justified this action because the credit system was seizing up. The banks were not trusting each other. Inter-bank lending was grinding to a halt.

Certain parties wanted to control the market, shape the economy, and if possible avoid the Darwinian consequences that would normally befall those who made the bad decisions. I have to wonder if this is going to work. Instead of favoring production and savings, our economy moved toward a consumption model. We watched as housing prices climbed higher and higher, politicians and financial wizards called this wealth creation. Without reason to climb, the foundation has dropped out and prices have fallen.

Gravity works in the financial markets just like it works in our lives. What goes up must come down unless a greater force continues to make it do otherwise. Can the bailout overcome this gravity? Will the inertia of the bailout overcome the gravitational pull of the financial markets, maintaining an orbit outside that force?

I don’t know nearly as much as many in the financial world but I am having a hard time believing the government can control these forces without making significant changes in the system. Is control worth these changes?
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