MInTheGap

Standing in the Gap in a Society that's Warring with God.

Capitalism Correction

September 16th, 2008 Visited 1078 times, 1 so far today

010_AIG.png When you think of Capitalism, what do you think?  For me, I tend to think of the process of people making money, or entrepreneurship.  I think of stocks, bonds, and investments.

I usually don’t think of bankruptcy and businesses closing.

But that is actually part and parcel of capitalism.  Those that take the greatest risk have the greatest opportunity for reward, but they have the greatest opportunity for failure as well.

What we’re seeing now with AIG, Lehman, and Merrill Lynch is just another step in the sequence of what happens when companies take on high risk loans and believe that nothing bad will happen.

Except it did.

As many of you know, I’m anti-government intervention into these things.  For one thing, who decides whether AIG should continue to be around, but Lehman should close?  Why was Bear Stearns allowed to find a buyer?

Government is inherently unfair when it steps in to “save the day” because it shows just which companies it values (and now owns) and does not let the market learn from its mistakes.

And yet government’s hands are tied this time.  Interest rates may come down from the Fed, but expect them up very high from your bank.  If you’re not in a fixed rate mortgage, expect your ARM to really shock you.

We need these times of correction.  I’m not sure if things would be as bad as they say when it came to AIG, but I know that we’re certainly setting bad precedent when we use taxpayer money to cover for the mistakes of companies that took high risks.

MInTheGap

Standing in the Gap in a Society that's Warring with God.

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