Posted by
John Crutchfield on Monday, October 27, 2008 7:44:39 AM
America is under seige. We're being attacked from all directions by those who are determined to destroy our capitalist system and liberty itself. The Wall Street bailout was intended to shore up the financial world and stave off a recession, but the very act of assuming someone elses financial responsibility flies in the face of economic fundamentals and investors know it.
The profit motive is what drives our system. Businesses are started by those with a vision and hope and a few bucks. Most invest their lives and fortunes, however big or small, into their brainchild believing they have something others will want. But, what if others don't want whatever it is they're selling? Chances are, the business will fail and the owner will lose his or her shirt in the process. Entrepaneurs accept this possibility and yet, go forward anyway hoping to increase the value of their original investment. Makes sense, right? Why would you knowing enter into any venture where failure is virtually guaranteed? Are you listening, Barney Frank, Chris Dodd and Barack Obama?
The capitalist system rewards risk with profit. Indeed, risk is the sole justification for profit, so it is correct to say that if you don't take on risk, don't expect a profit. The conundrum of this bailout is that it nullifies risk. Taking this to the extreme, no one would deserve a profit under the fundamental nature of this bailout. This remedy might also be setting a precedent that could be used to justify any and all future government intrusion into the private sector. In other words, the private sector could ultimately cease to exist. Socialists hate profit, unless its theirs.
The bad news is, with government "investment" comes government regulations. Many details of the regulations and a plan for the withdrawal of government control are yet to be determined or digested. There are questions about what lending institutions will do with the money. Add to this whatever remedial uncertainties of the global marketplace and you have a recipe that virtually guarantees the financial cake will fall. The good news is, ummm, I'll have to get back to you on that.
Now, in the weeks since the bailout passed, global markets have tumbled into a chasm and no one can prdict what each new day will bring. The radical fluctuations indicate that investors don't trust the government's meddling in the marketplace. There's a new fear unlike anything we've seen here before. It's the fear that the powers that be will begin to dictate the outcome of investments and that is not good. If the government is willing to tinker with risk, it unavoidably effects profits as well. It isn't rocket science. I couldn't build a rocket, but I know a number of congressmen who deserve a ride on one.
All this nervous energy is causing investors to be very skittish. Politicians, seizing every opportunity to capitalize on the current financial crisis, dish up ever evolving solutions to the latest dip in the market. Did it ever occur to these geniuses that their kneejerk reactions might be exascerbating the problem? When Fed Chairmen have to choose every word with extreme caution, its not hard to imagine what radical political rhetoric from the presidential candidates is doing to investor confidence. How can investors feel comfortable sinking money into a game where the goal line is constantly moving? They know this is like packing a couple of suitcases with Ben Franklins for a trip down a dark alley inhabited by crack addicts.
Every day brings a new crisis that candidates say can only be fixed with billions of our dollars, but I think it might be time for them to just shut up about it. They probably won't though. What a blow it would be to their self esteem if the market recovered without their help. Then we'd all know how useless they really are. Can't risk that. Better they fleece the American taxpayer for a few trillion bucks.
In addition to the aforementioned concerns, I believe the marketplace is very worried about what changes will come with an Obama presidency and that is at least part of the uneasyness investors are feeling right now. I predict the markets will either soar or crash and burn depending on voters' choice on November 4th. WIll capitalism win the day, or are our worst days still ahead?