FED is setting precedents. Bad ones.

Time to test your parenting skills. Ok now, you have 5 children. One day, your 2 eldest childred are caught shoplifting in a candy store, which you disapprove of. What do you do?

a) Punish them and make sure to do a better job teaching your kids the difference between right and wrong.
b) Take money from your other 3 kids and give it to the first 2, so they won't have to steal so much.

Evidently, America thinks that the correct answer is b).

Yes, essentially, those who commit crimes are being rewarded, to the detriment of those who behaved themselves.

...

This is rather short sighted of them.

If the American government were TRULY confident in a recovery, they would have let all those big corporations go bankrupt... after all, it would only be a temporary delay in recovery, not something permanent, right?

...

BUT... doing things like these bailouts IS PERMANENT. Or it has a very very long lasting effect...

Essentially, they are creating the next set of problems, 5-10 years down the road, or even sooner, there will be another mess caused by companies taking on too much risk. Because America has stupidly more or less announced to Wall Street: No matter what you do, no matter how big a mess you get in, we will bail you out... and the MORE damaging the mess you make is to America, the MORE likely that the FED will be forced to bail you out using taxpayer money.

None of those high flyers who created this mess have been punished, penalised, or suffered significant losses.

The moral of the story? You can and SHOULD do as much of this funny business as possible... because history has shown that you can and will get rich... and you will not have to face any consequences whatsoever.

...

Yeah yeah, the current argument now is that "these businesses are too large to fail", and "it will make the economy collapse even further".

... I got news for you:

It won't.

In fact, a business collapsing will cause a new equilibrium to be reached. As long as there is demand for a service, the supply will be filled. It's a truism of capitalism.

Letting a COMPANY collapse does not necessarily mean the collapse of the BUSINESS TRANSACTIONS of the company... like energy, this business is not destroyed, it merely changes form/ company. Other companies will prosper in the wake of rival companies closing down.

Whether or not the corporations are bailed out, the amount of investment banking, mortages, and auto sales will generally remain unchanged. The only difference is that workers, customers, and money will all flow from the liquidated companies to the stronger companies.

Whether or not the corporations are bailed out, staff layoffs will occur, output will be reduced, branches will be closed... and it will follow the rule of EXPECTED DEMAND for services... it in fact has only a tiny correlation with whether individual companies are saved or go bankrupt.

So, what is the point of this entire bailout exercise?

Seriously, these bailouts are not saving jobs, or creating liquidity (which is another debatable issue), or generating growth... the only achievement is propping up Wall Street, and keeping certain politicians rich with ill gotten wealth.

What is with all these terms of the bailouts anyhow??? America is talking rubbish now about "not wanting to nationalize too many companies" and "history has shown that the government does not run businesses well".

Er... you know what? At the moment, that is REALLY obvious... in fact, at the moment, the FED is showing it's stupidity by not accepting CONTROL over the companies... not demanding a share of REWARDS for these companies... but it is accepting a huge share of the RISK!!! You know... refuse to partake any of the good stuff, but accept to share all the bad stuff?

Anyhow, I don't see any CEOs being forced to put their own personal wealth into loans into the companies involved. Now... THAT would make me have confidence in GM recovering... if you could get Rick Wagoner to invest 90% of his networth into General Motors... with lower seniority than any bondholders and taxpayers! Yeah, that's right... if Rick Wagoner agreed to sink 90% of his networth and he would only be paid back after everyone else is paid back, that would make me absolutely certain that he has confidence in his own company.

The truth is, Rick Wagoner knows that GM is doomed. He would never agree to such a deal. Heck, he would not even agree to put 90% of his networth into a loan which would only be behind the American taxpayer. He KNOWS that any taxpayer money put in will be at huge risk, very likely to go up in smoke.

...

They are setting a VERY bad example and precedent. The motivation is now HUGE for anyone to do repeat exactly what caused this current crisis. America is in fact REWARDING THE IRRESPONSIBLE and PUNISHING THE RESPONSIBILE.

Mark my words... in 10 years time, the FED is going to look back at this current period and say, "We shouldn't have done all those bailouts... they went against the very principles of free market, capitalism and democracy. They set a bad precedent, which is causing history to repeat itself."