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The Financial Crisis

You're three and a half years old, sitting at a park bench in the middle of Chicago on a muggy afternoon. There are various three and a half year old children around. You have eleventeen packs of cards donated to you by the company your Dad works for. For the fun of it you and the kids build a massive house of cards thirty stories high and nearly a hundred feet long.

Everything is going great when all of the sudden you notice the wind picking up speed. A few of your top floors fall but luckily the foundation is still standing. You and the other kids are sad but press on because you all are having so much fun.

The wind speed continues to rise and gusts are starting to make the house of cards wobble. You whine to your Dad who calls his boss and horay! Your Dad's company volunteers some very expensive scotch tape to shore the cards together to save the house.

The question is: do you take the free, but expensive tape and try to hold up the house, or do you let it fall and go buy yourself some Duplo Blocks to play with the other kids without having to worry about the wind?

The company is the US government. The cards are the rather loose loan laws. The kids are the American Public. The house you all built is the housing market. Finally the tape is a 700 billion dollar print of new money (which could be turned into US bonds later to get the money back to keep the dollary from losing value).

Personally I think they should let the house fall and figure out where to buy some Duplo Blocks. Pass some laws to make the housing market more stable.

In other words let it "smart" so people learn from their mistakes.

Care to express your opinions?

Comments
4 Comment count
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Three and a half years old, Bailing out Wall Street

Cute imagery, a bit of Dali on Sesame Street.

There is a flaw in the logic. "Wall Street", and "government" are not organisms that learn from feeling the sting. The folks that took the money and ran still have the money. The folks that never took an economics course in our lives... we will feel the sting in varying degrees. Having learned from the past, what is the likelihood of a similar situation in the future? We learn mistrust, we learn disappointment, and possibly even hunger. What we haven't yet learned is how to think beyond "how will this effect me?" to, "what standard of living can the US economy and society sustain for the good of the whole?"

I agree that the bailout looks like a bad idea. If the purpose is to shore up the dollar, won't all of this debt sabotage that? If the purpose is to save foreclosed homes, wouldn't it cost less to purchase every one of those homes than to bail out the whole financial system? At least homes are tangible property. What are we buying but more risk?

We may be buying back the ability for businesses and employers to obtain capital needed for ongoing operations. The pale visages of congressional leaders and president at the onset of this crisis leads me to suspect there's something they are not telling us. Maybe we should let them know we are not three and a half, we decide about adhesives, toys and housing, and we can bite the bullet when we have to. In short, I'd like to know the stakes if someone is going to gamble with my money, future, and job.

Maybe the bailout is necessary, and if so, I would like to know why.

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Thanks for the thoughtful

Thanks for the thoughtful reply. You are the first person to comment on any of my blogs. Thanks for that too.

I understand your synicism. It surely doesn't seem like anyone is going to learn anything from this. But bailing out the industry pulls the option of learning off the table. At least letting the cards fall gives the government and the businesses the option of learning and legislating.

Everyone talks about how bad things will be if this plan doesn't happen. I think letting fear rule us will destroy us.

I hope they don't pass the bill. I hope everyone realizes that the sky isn't falling and we'll muddle through this.

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Let it fall

AIG is an insurance company. There are HUNDREDS of other, better managed, insurance companies that would LOVE to underwrite the old AIG policies.

The IRS wants every last single penny I owe in taxes. But look where it gets spent ... wars and bailouts.

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I completely agree. Let the

I completely agree. Let the market sort itself. What good is a system if everytime it has some negative feedback you throw a giant resistor in the way?

People need to understand servo mechanics to understand how negative feedback works to stablize the mechanism. If we erase the negative feedback, we'll just create more instability in the long run.

That's my opinion anyway.