UPDATE!!
In a 228 to 205 vote, the U.S. House of Representatives defeated a $700 billion emergency rescue package, ignoring urgent pleas from President Bush and bipartisan congressional leaders to quickly bail out the staggering financial industry.
If you are a banking executive, Congressperson, homeowner facing foreclosure, or if you work for the Treasury, White House, or Federal Reserve, this has been a long weekend. I for one am happy it’s past us as the marriage of business and politics always yields a bastard.
Now that we are much, much, much, poorer today than we were Friday, I don’t think we are any smarter. I say this because I don’t believe we are learning from this mess. Here is what I am talking about. WaMu finally went belly up, losing over $16 billion in deposits in less than 10 days. While WaMu was drawing its last breathe, the vultures were circling Second Avenue in Seattle waiting for the Vicar to administer last rights, then swoop down and begin to feast on the carcass.
So it begins….
As it turns out, JP Morgan will get the spoils of this once great but fallen bank having only spent $1.9 billion to get it. Now, anyone working the beltway will tell you that the JP Morgan sale is a good thing since JP Morgan will be responsible to make depositors whole instead of the FDIC. To me, it would mean more if I hadn’t just emptied my kid’s piggy bank into Uncle Sam’s hat.
The law of unintended consequences
The bailout came to be for one simple reason…these firms were too big to fail. Companies like Freddie Mac and Fannie Mae, Lehman Brothers, and now WaMu would cripple the U.S. economy if allowed to collapse. But aren’t we creating another golem here? Why would we continue to allow the largest of the large to continue to fatten up on failed financials as if they were Thanksgiving turkeys in October.
I mean, do you think the government is going to let BOA fail five years from now? Or JP Morgan? Seems to me we are setting ourselves up to fail again, too much power in the hands of too few. In our rush to cover our bets and get the economy back on track are we ignoring, in fact, promoting the very causes that resulted in the financial meltdown we are involved with today? I want to know how you feel about this whole mess. Will it impact who you vote for in November? Do you think we are out of the woods yet? What will it take?
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{ 4 comments… read them below or add one }
Well said? Great information, keep up the great work!
BOA and J P Morgan, are they private or public company, or just a US government’s agency cover with a label of private or public company?
They are protected by US government too much. Their main job is make money on their financial market business or make deal with US government.
Robert, I have no idea.
But I love this quote:
“But aren’t we creating another golem here? Why would we continue to allow the largest of the large to continue to fatten up on failed financials as if they were Thanksgiving turkeys in October.”
It appears that a double standard exists in this country, one that can possibly be exposed as dangerously flawed. In order to do that, I have to make a rather convoluted comparison to the theory of The Long Tail vs. the Blockbuster Strategy:
If you consider the impact of 24 million small businesses bleeding to death for lack of working capital (those small loans they may make to even out irregular cashflows from receivables), would you conclude that the domino effect of such a collapse would render moot the survivability of the Fortune 500 companies, who no longer have a local client base?
I know I present a rather simplistic view but, it seems short-sighted to be saving a big bank that operated with the impunity of one who knows that his Uncle “has his back”, rather than creating a system for ensuring the viability of small businesses.
Or is this simply an opportunistic looting of the treasury?
Cheers,
Mitch
@ Stacey-Thanks for stopping by!
@Andy-Your comments are always welcome here my friend!
@Mitch-I am afraid you are spot on, which is why I don’t understand why we the people are hammering Congress so much. We need to stop thinking of this as a bailout for Wall Street and more like a life raft to those 24 million small businesses you talked about! Thanks for stopping by Mitch!