Quote:
Originally Posted by atlcomedy
It is called a business cycle 
Like the QB on the FB team, POTUS gets way too much credit when things are well and way too much blame when they aren't relative to what he actually controls. |
Agreed. But it is not just the "business cycle" either. When the Gov (and I'd prefer to address the Gov rather than POTUS) plays in the business world, it is outmatched.
FDIC insurance - Perhaps a needed item, but the Gov failed to recognize the fact that such insurance means it's citizens (for the most part) pay zero attention to the financial stablity of the banks where it places their money. Up to $250K now, guaranteed by the Gov. That covers the vast majority of people. No other business would get away with 6% equity without the Gov guarantee.
CRA - Required banks to invest dollars locally, in all areas around the bank, regardless of the merit of different areas. Banks can either not service an area or they are required to fully service the areas with lending. As such, to comply with the regulations, the bank makes riskier loans in certain areas to keep the regulators out of their hair.
ADA - Placed all kinds of regulations on business to comply with disability access. Such requirement drives up the cost of many finished products to us all...regardless of the cost/benefit to society as a whole of those costs.
Fannie Mae/Freddie Mac regulations - The Gov relaxed credit standards to allow more and more of its citizens access to No Doc & Low Doc loans so that more and more of its citizens could access home ownership. This was done without much regard to normal credit standards.
Deregulation of deposit interest - Gov wanted to allow eveyone to make interest on their deposits so they deregulated interest rates on deposits...ultimately allowing even investment banks to access the general publics money. Banks and investment banks asked for and recieved the ability to make riskier investments so that they could now pay interest on the accounts that had prviously been provided interest free.
Each time the Gov extracted some "For the good of society" law or regulation from business...business extracted some relaxation of other rules to be able to comply. But the risk of the transaction never really changed. The risk was always there. It just became a question of who was taking on that risk. The thought was that business would never get outside the realm of reason. But business can be just as foolish as Gov...and in this case, Gov didn't recognize the concept of "too big to fail". Without even knowing it, through a series of errant moves over decades of time, both business and Gov transferred risk to the Gov. Did this get done with forethought by busness?...I don't think so...because business lost lots and lots of money also...and business does not like that.
Now Gov finds itself in the precarious position of just allowing busniess to fail...along with all of the citizen fallout that such failure might entail...or stepping in to prop up business...in hopes of softening the blow of the risk that has finally come home to roost.
And they (Gov) politicize those bailouts too. Allowing GM to have gone through bankrupcy would have meant a much stronger GM on the backside of bankruptcy. Shareholders should have been washed out by the creditors. But union contracts would have also been washed out in the bankruptcy...as well as unfunded pension liabilites. And such an action would not have been a popular move. So, instead we end up giving shareholders a little, make creditors take some financial hit, and hold on as much as possible to the employee benefits. But GM is a weaker company today as a result...and new jobs, at a price level that can be supported by the industry, are placed on tha back burner.
Notice I have not attributed any of this to Dems or Pubs or Conservatives or Liberals. We have all done this. But it is foolsih to think that a Dog will act like a Cat or a Cat like a Dog. Business does what it does...which is try to make money and create value. Gov does what it does, which is try to spread that money around enough to get itself reelected. Neither of those motives has redeeming value. For the 1990's and early 2000's it looked like both sides were winners. But as it has turned out, both sides are now trying to figure out who has to pay for the risk that was always there as its now time to pay the piper.
