I went to dinner at my father’s the other night, and the topic of conversation turned to the economy, as it so often does these days. Now, neither of us is an economist, and in fact I am so untalented at money-related things that I should be writing a series of books called What NOT to Do With Your Money. But we are both reasonably intelligent people, and we are both mystified by the decisions which the government is making.
We can’t figure out if there is some huge element in the picture that we are totally missing, or if the government really is just stupid. I’m kind of leaning towards the latter, myself. Because some of the things we are talking about seem pretty basic to me, and if they’re basic to me, they must be basic to everyone else.
I’d really like to know why we are giving billions of dollars in handouts to the financial industry. As my father pointed out, companies like CitiCorp, AIG, and Bear Sterns don’t contribute anything solid to society. They push paper around. The automakers at least make something, even if it’s a crappy something. I don’t really see how bleeding the taxpayers is going to accomplish anything. If we’re that close to total collapse, we should be shoring up the FDIC.
So, there are a couple of issues here. The first is that I think that if we are going to be nationalizing industries, we need to be fully nationalizing them, which means that the government starts to play an active role in decisionmaking. I think that the heads/boards of these companies need to be dismissed so that people with fresh, new ideas can start running them, and start turning them around. It’s one thing to give a con man (AIG) billions of dollars at one go, but to do it again? That’s just foolish talk, people. We’re essentially rewarding these companies for irresponsible behaviour by indicating that we will keep giving them money as long as they ask for it.
Two, we need to be forcing write downs. There is no way to fix this problem without writing down substantial amounts of debt. There are hints of that with the housing plan, but it’s not enough. If companies take money from the government, they need to be agreeing to write downs. It’s just that simple. The “value” of these assets is the result of a bubble that done gone and popped, and we should not be trying to reinflate it by propping up artificial values. And yeah, that means that banks are definitely going to need to eat it, and their shareholders are going to eat it too. But them’s the breaks, and I think that in the long term, it will be better for the economy.
I don’t think that either of these ideas is particularly radical or innovative. So why isn’t the government thinking about them?