Tuesday, October 28, 2008

The Bailout Fallout

According to the Today Show this morning, many of the same financial institutions that received billions of dollars in federal aid have set aside a large portion of that money for year-end employee bonuses. It was reported that Morgan Stanley set aside $6.5 Billion for their employees resulting in an average employee pay of $210,000.00. Other companies acted similarly. We should also not forget the AIG execs who took the $443,000.00 spa vacation after the initial, massive, government bailout totaling $85 Billion.

As I warned before, we should see that it is 'business as usual' for these companies. With the government stepping in to save them, there is little incentive for change. It is always easier to spend (mismanage) someone else's money. These institutions were not required to pay their dues or work to regain the trust of their customers. Don't expect the handouts to end with the first or the second, or even a third economic stimulus package. As long as companies have a source of relief, they will grow fat and lazy, offering less to customers and demanding more. Picture your credit provider treating you like the airlines, energy providers, the DMV, or the Post-office. Better yet, remember (if you can) the bread lines of the former U.S.S.R.

When the government takes over a program, it is sure to slog-on in the same sorry state (or worse) forever as they continue to throw money at it; your money. If the government keeps its interest in AIG and other financial companies, they will become state-owned and will likely offer horrible service. There will also be little chance for other financial institutions to effectively compete, thus creating a oligarchy of a few, major, providers which operate similarly.

Here is a snippet on the loss of supply and demand in the health care industry in Sweden from the blog Life Distilled.
One of the most obvious symptoms of communism is queue lines. The demand for a good becomes significantly larger than the supply of it. A good which is priced at zero will be overused, at the same time, the supply side will be reduced since there are no incentives to rationalize or move into the market. You know the scenery: empty shelves, people queueing up for rotten bread. Or rotten healthcare. In Sweden, our enchanted, beloved communist healthcare system lets people wait for more than two years before they can get certain surgeries.
Are these the sort of results we want in this country?

This is not the answer to our financial woes! Bush, Congress, Obama and McCain are all for this slide into communism, which tells me what the next four years will look like. Instead, we should send a clear message to our congressmen and women: Take your finger out of the dike! Retrieve what money has been spent and let things fall. Make the financial institutions compete in a free market so that we can have better options and not have to pay for them twice (fees/interest from our credit providers and taxes).

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