The Bailout

In this post, I am going to break the First Rule of Blogging. What is the First Rule you ask?

Act like you know all the answers!

I have to admit that I do not know the answer to the current financial crisis. In fact, I started a new training and consulting business on September 15, 2008. That's right, I left a company job to fly solo on the day the financial markets crashed. Talk about timing.

My dilemma is that I don't know how I feel about the bailout. On the one hand, I realize that if these bank failures continue unchecked the results will be devastating. On the other hand, I am a free market guy. I am not convinced that government intervention will actually solve the problem and I fear that we will be faced with unintended consequences.

The mortgage implosion reminds me of the Tech Boom. I am a techie and at the time I told my father that being in high tech was like printing money. I was getting about a dozen headhunter calls a day. Jobs and money were plentiful. The problem is that while the market cap of tech companies and their IPO's were shooting for the moon, there was no grounding. Investors were throwing money at companies that did nothing and produced nothing. Investment gurus said that this was a new economy and traditional metrics like Price to Earnings Ratio simply did not apply. While they were wrong and when the crash came, it was huge.

Likewise in the Housing Boom, people lost sight of history and reality and operated on the mis-guided belief that housing prices could only go up and quickly. Banks were lending money without income verification, borrowers were using creative vehicles like interest-only loans.

This current problem is a crisis of our own making. It is no surprise that Ron Paul opposes the bailout. I am surprised to see that Mike Huckabee also opposes it. I agree with Congressman King that the bailout is essentially a form of socialism. As Iowans we have not contributed much to the crisis. Lenders in the state did not generally utilize these creative forms of financing. Most borrowers bought homes to live in not to cash in. Yet in a bailout, Iowans will pay just like Californians.

I don't know the answer but I am watching closely.

Comments

[Al]

I think that the bailouts are a mistake. The bailouts will only reward poor decision making skills. Because of this it will reinforce this bad behavior to create an even bigger debacle in the future.
On the other hand if we let them fail it will reaffirm the idea of responsible behavior. Basically it will tell people that if they screw up they will have to live with the consequences.

[Mike Sanders]

I think that Barack Obama has a very good plan for the bailout. I dont usually vote Democratic, but I thin it is important that we look past party lines and find the answers that will truly work.

Obama has them, McCain does not.