Does the free market solution cause problems 2008

After getting the bum’s rush over the Wall Street bailout, the conservatives have come to their senses and nixed the deal.

Or have they?

They now say we need a ‘free-market solution’ for the problem instead of depending on the taxpayer.

Sounds rosy, so what is the problem?

Well, the ‘new’ conservative solution is a repackaged version of the original bailout plan, only worse for the taxpayer.

To explain it takes a few words.

The problem is twofold: first are the failed mortgages, and second are derivatives. Simply put, derivatives are insurance that Wall Street purchased to cover their investments. Wall Street was smart enough to hedge their bets by buying insurance against potential loss.

After Wall Street lost money on mortgage investments, they sought compensation from the derivative holder or insurance company. Companies like AIG paid as much as they could before going broke.

Failure of the derivative market caused the expanded crisis that we have today. I might add that it’s hard to believe this result wasn’t known months ago.

In any circumstance, the bailout was suddenly thrust upon the public. We were told that an immediate no-questions-asked infusion of cash was needed or else catastrophe loomed.

The Democrats balked. They wanted oversight and regulation and cuts in executive pay.

The conservative Republicans balked too. They saw the bailout as a giveaway of assets that would be worth substantial cash in the future, and further saw that any asset given to the taxpayer would be socialism.

So the bailout plan collapsed.

Not to worry, the inventive conservatives floated their new plan. They want less regulation, less oversight, full compensation for their losses at taxpayer expense, and the government to handle all further problems.

The conservative ‘free-market solution’ wants the government to cover derivatives as if they were FDIC insured deposits. This means that Wall Street investors would receive taxpayer money equal to the full value of the original investment. Alas, Wall Street investors would lose nothing and the taxpayer would pay the bill.

But there’s more. Quoting Galbraith from the Washington Post: ‘The government would set up a Home Owners Loan Corp, which would re-write mortgages, manage rental conversions, and decide when degraded properties should be demolished.’ End quote.

In other words, Wall Street would gain full compensation for their losses at taxpayer expense. AND the taxpayer would be left to sort out the morass of individual mortgages across the land > a monumental project by any measure, which makes one wonder if business wouldn’t be better able to handle the problem than the ‘inefficient’ government.

But the conservatives call that a ‘free market solution.’

What worries me most however; is what these conservative guys will do when they don’t get their way.

I imagine come spring 2009, after the new president is installed, we-the-people will receive the full wrath and fury of free marketeers demanding their due. After that, the people will be willing to pay anything to restore the old way. Or will they?
 
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Let’s let the free market control everything. That way developers can knock down every tree within hundreds of miles of each city and pour massive quantities of heat-seeking concrete. Let’s make sure no bike paths are available and that parks are limited to a few square blocks per million people.

And better yet, let’s finance the entire thing with debt rather than savings. Yep let’s bankroll our entire e-comical system on money-owed rather than money-earned. This will encourage gigantic homes and buildings that consume gigantic quantities of resources that will drive up the costs for everyone.

Do you know what they call a capitalist that drowns in a new lake formed at the base of a glacier? A good start.

Gene Haynes