Friday, October 03, 2008

Greed and the American Public

I've seen a lot of comments from viewers on CNBC, CNN & FOX about how they reject the notion of a wholesale bank bailout. When you look at the reasoning behind why the bailout was defeated on Monday, it seems to stem from the perception that it's simply bailing out the greed and excess on Wall street. What most people seem to forget is that consumers share a great deal of the blame as well and they (we) should recognize that. What do I mean by that? Well, how many people in North America bought huge houses when interest rates were microscopic? How many people took 3 vacations a year on their credit cards? How many people leased multiple massive cars because they seemed so cheap? How many people ran up their credit cards? It goes on, the government lowered interest rates and both political parties encouraged people to buy houses with nothing down. Deregulation allowed banks to offer interest only 40 year mortgages to people who could barely afford it even in good times. The greedy system provided greedy people with unlimited nearly free toys and when the party ended the greedy people blamed the greedy system for victimizing them.

We're all going to eat shit for a while because credit has dried up even for responsible people and companies and without credit the whole economy goes into slow motion and sometimes seizes. I've heard many people talk about the 'old fashion' way of doing business without credit. That's a load of shit because without responsible credit this society wouldn't exist and without irresponsible credit, it wouldn't have grown as fast as it did. If your supplier doesn't give you 30 days credit and you don't give your clients 30 day credit, your business is going to suffer. If the concept of car lease/purchase financing is gone, we're all driving 8 year old rust buckets and a few million people will be out of work and UPS ceases to exist. Oh yeah, without credit your municipality can never fix anything major that breaks until you all go drop off a bags of cash at city hall.

I'm all for responsible credit and tighter regulations and I think that Warren Buffet and Mark Cuban are both right in their thinking that if you let investors buy in alongside the government into the credit pool that's currently seized up, almost everybody will come out better for it.

Until it un-seizes, we're all in big shit. Conserve your cash because you'll need it to survive or you'll find some great buying opportunities soon if things go well.

1 comment:

Anonymous said...

I agree with you 100%.