Government Bailing Out Big Corporations

[clientcritic]

When govt bails out these big corporations...what does it mean to small business owners like us?

What do you all thinkg about the AIG bail out and the breaking news about a $1 trillion dollar bail out now?

[byzantium]

As any computer hacker knows, the weakest link in any system is the human link. In this case, it means that the government is worried about PANIC, probably in the form of a stock market run (people cashing in their stocks, bonds, mutual funds, etc and stashing the money under their mattress). There's already been a run of sorts in the institutional investor world, and the Federal Reserve is worried about Joe Investor deciding to do the same thing. At least that's what I THINK they're thinking. I hope that they haven't got so disconnected that they are separating the system from the people who run it.

The Great Depression was greatly sharpened by massive bank runs in the US and Europe, where people pulled everything they had out of the banks, destroying the banking system. The US has the capability to deal with a bank run, but not a securities run. That should have been part of the New Deal, but people were blaming the mess on the stock market, and protection against a securities run was jettisoned in favor of helping "common men" via bank run protection.

Today, a much broader range of the population owns equities, at least in the US where the stock market has been touted as the replacement for traditional pensions, and people depend on unrealistic stock performance expectations for retirement. If people think that their stocks won't be there for them, in an age where people's life savings is usually in mutual funds, they'll pull everything out and cripple Wall Street.

Nobody knows where the tipping point is, what company going under would persuade people to call their broker and demand to sell. The Fed is worried that any day could spark the Big Run, and the system would come crashing down, so they want to bail out everybody in hopes of stopping it. Human psychology is fickle, so it may not work. But it's apparently the only thing they can think of.

I read in The Wall Street Journal today how eliminating a few accounting rules would solve much of the problem, but the Fed just wants to throw money at the problem and hopes it goes away. Eventually you'll have a problem with inflation, but everybody seems worried about DEflation now. Throwing a pot full of spaghetti on the wall in the hopes that some will stick seems to be an American trait. FDR did it with the Depression, and Harry Truman's first reaction to the invasion of South Korea was just to throw everything we had at North Korea. More recently, that seems to be W's approach to fighting terrorism.

[ScottRobertson]

In this situation with the current economic conditions - the government giving money to big corporations well HELP small businesses.

If the government were to allow the big corporations to fail, making Americans lose income/wealth, therefore constricting Americans consumption even more (making the recession worse). Please don't think I'm saying it is as simple as that and those are the only factors. That is an overly simplistic explanation of it.

[1entrepreneur]

I am not a fan of spending tax dollars to bail out businesses, but these business are the foundations of the US economy. If they fail, the entire economy will collapse, and that is the worst case scenario.

[Warranties-For-Less]

Crazy,

This is the mistake of the century, to move towards socialism will not correct problems with economy, all it does is delay it, same results, but now the liability is clearly put upon the taxpayers while all the fat cat politicians who have lined their pockets at our expense will join the wallstreeters and corporate theives who along with Greenspan are at the core of problem. Amazing how none of our so called leaders saw this coming decades ago when gov. printed so much non backed currency it is now barely worth more than monopoly money. lol

Good luck to all, Mike

[ScottRobertson]

Crazy,

This is the mistake of the century, to move towards socialism will not correct problems with economy, all it does is delay it, same results, but now the liability is clearly put upon the taxpayers while all the fat cat politicians who have lined their pockets at our expense will join the wallstreeters and corporate theives who along with Greenspan are at the core of problem. Amazing how none of our so called leaders saw this coming decades ago when gov. printed so much non backed currency it is now barely worth more than monopoly money. lol

Good luck to all, Mike

1. They are not trying to correct the problems with the economy by giving money to the corporations. They are trying to smooth out the problems or at least put them off for the future so that it does not contribute to the current problem. What's interesting about this though is that as far as I could tell, it seemed the government was trying to allow the institutions to fail quickly, so that new ones would pop up and start their cycle - generally that has proven to be a fairly efficient way to deal with such a problem. Personally, I can't wait to see how everything turns out.

2. How are politicians and corporate 'thieves' at the core of the problem? And yes the liability is on the tax payers, but that doesn't necessarily mean you. Maybe the government economists are planning on deferring all of this to a future generation, where times are expected to be economically better.

3. I'm out of my element here, but taking a quick look at US real gdp and the US money supply graphs .. it seems they are growing together just fine (from like 1960-2007). Other variables need to be considered of course, but what do you mean about all this unbacked currency from decades ago (which PS, I think would have had an effect much closer to its time of printing rather than decades latter).