Another "Main Street" Opinion

I feel compelled to weigh in with my “Main Street” opinion on our current fiscal crisis. I welcome comments with contrary opinions; I just ask that you please keep them courteous. I also give two disclaimers. One is that this is my personal opinion and it doesn't reflect the opinions of my place of work or any affiliated organization. The second disclaimer is that I am not an economic expert, nor am I in any position to make a decision on what happens with the bail out process (except with my personal vote this November and I address that later in this posting).

Recently, I have been telling anyone who will listen to remember the words of Albert Einstein, "We cannot solve the problems we face at the same level of thinking as when we created them."

The issues I have with the "bail out" plan, as proposed, is not that I am against investment in our economy. There is no doubt that our tax dollars are a contributing factor in our economy and there is no way around that. My problem with the plan is that it does not appear as if our tax dollars are being invested. As proposed, our dollars are being used to purchase worthless assets from private companies who made poor decisions so they have capital to continue investment in wiser opportunities. The principal behind that is that the taxpayers need to do this to insure there is capital available for future investment. That is fine by me, but if the taxpayers are going to put up money to ensure the continuing flow of credit, shouldn't the taxpayers reap the rewards of that investment?

The "bail out" plan relies too much on a good faith assumption that a successful economy created by private firms making money will reward the taxpayers. Well, in my opinion, past performance is the best predictor of future behavior. Over $126 billion was pledged to bail out the Savings and Loans in the late 80s and early 90s and we watched that industry recreate itself, develop amazing wealth and then squander it through poor judgment to lead us back to where we stand today.

I remind you that just two years ago, some of the same companies that are seeking a taxpayer bailout were handing out huge bonuses. See this link to some of the corporate bonuses that were doled out in 2006 by some major players in this industry:


http://www.bankersball.com/2006/11/06/2006-bonuses/

How much of that wealth trickled down to the average taxpayer? Why wasn't that money socked away for a rainy day such as today?

So I've stated the problem, but what is the solution? Unfortunately, I don't have the answer. I am spinning my wheels trying to help come up with a good suggestion. But I am not an economics expert and I tend not to make decisions of this magnitude without some thought and research. Yet here in lies another problem; everyone seems to think we need to fix this by next week. To be frank, for the President, the taxpayers or the press to expect Congress to just turn over $700 Billion of taxpayer monies in one week to an industry that created a financial mess that was years in the making is just an unreasonable expectation. Even more ludicrous is the belief that Congress can make an educated decision in this time frame that carefully projects likely outcomes of of this appropriation. I’m not very comfortable with the odds for success.

Still, I am going to try to throw something out there and the best suggestion I can make is that we could follow Robert Kiyosaki's advice for a best practice of investment strategy, as outlined in his book, “Rich Dad, Poor Dad.” As noted in a previous post, he suggests that investment should be in assets that are likely to generate income. So let’s invest taxpayers dollars in those types of assets instead of the worthless junk that we are proposed to be buying. At least with this model, the taxpayer’s investment will stand a chance to yield the taxpayer some rewards.

Unfortunately, there is no mechanism in place to make decisions on investing so much public dollars into private industry wisely and prudently. So many people will throw out my suggestion because the world is on the verge of collapse and it is just not timely enough of a solution.

Keeping that in mind, I feel that we are faced with these alternatives:

1. Congress can act now and throw taxpayer dollars at a poorly conceived, reactionary bail out plan
2. Congress can actually work on a bipartisan, proactive plan that ensures the flow of credit is available after developing a mechanism to wisely invest public capital into private industry
3. We do nothing and let the private sector continue with its fascinating, Darwinian “survival of the fittest” economy

Here is what I foresee to be the results of each alternative:

1. Come November, the largest number of incumbents who lose Congressional elections is realized due to people like me who can't see the benefit of Congress bailing out Wall St. (especially when no government solutions were offered to me when I made poor investment decisions)
2. The Devils win the Stanley Cup since home ice advantage is obviously in hell because it just froze over.
3. Some people will lose a lot of money; some people will make a lot of money. Credit will tighten in some markets; credit will loosen in other markets. Some people will lose opportunities, some will gain opportunities. In other words, on a macro level, nothing will change.

For those who need me to be more literal about my editorial opinion, I am obviously in favor of letting the market sort things out. I am a bit cynical with my belief that our government is not capable of pulling politics and favoritism out of their decision making process. I am even more fearful that too many Congressional leaders do not have a strong enough understanding of finance to be making such a large “investment” decision, especially with other people's money.

I do not buy in to the global economic meltdown theory. In my opinion, it is like a law of thermodynamics: "The economy cannot be created or destroyed." The economy is still there, it just gets moved around in different ways.

I am well aware of the fact that there will be tragic stories of loss should government not act and I can empathize with those who stand to lose so much. But some of us have already had tragic stories of loss and the government left us to pull ourselves up by our own bootstraps. And can anyone think of a solution in our economy where everyone wins? Our competitive marketplace does not allow for that, which is the main reason why I stand firm in my belief that government should keep as much distance from this mess as possible. For the government to choose who wins in this game is too dangerous.

As P.J. O’Rourke once wrote, “The mystery of government is not how Washington works but how to make it stop.”