So, after bailing out ailing mortgage lenders Freddie Mac and Fannie Mae, the US Fed extends it's saving hands one more time and bails out AIG with an $85 billion loan. Obviously, this is a political decision. There is enough bad news on the Wall Street already, and the Republicans cannot possibly afford the economic and political fallout of a major insurer. So they do the most un-republican thing to save their asses. The normal republican sentiment is that the govt. will not save imploding businesses, however big they are. To his credit, John McCain said one the govt. should allow AIG to fail. I'm more in the Obama camp, but that is one voice of courage. Bravo McCain. You're probably not such a bad option for US President either. But your party is too f_cked up.
So, just like a socialist country, the US Fed goes and saves a bank. So what can be so bad about that? Because, with a bailout, you're saying don't give me too much pain now, but I'll take it little by little over a period of time. Letting the bank fail would make sure the 'bad money' is cleaned out. There would have been a possible global financial disaster, but markets always correct themselves. Bad bets will be wiped out, and things will start afresh. So now, there will be a financial recession anyways... but the bailout will just prolong it. Whoever comes to power in the US in november, they have a pretty bleak economy to work with. One can only hope they won't make it worse.
So, just like a socialist country, the US Fed goes and saves a bank. So what can be so bad about that? Because, with a bailout, you're saying don't give me too much pain now, but I'll take it little by little over a period of time. Letting the bank fail would make sure the 'bad money' is cleaned out. There would have been a possible global financial disaster, but markets always correct themselves. Bad bets will be wiped out, and things will start afresh. So now, there will be a financial recession anyways... but the bailout will just prolong it. Whoever comes to power in the US in november, they have a pretty bleak economy to work with. One can only hope they won't make it worse.
1 comment:
i dunno how competent i am to comment on this..but this is something i read as well as heard somewhere...unlike India, there is no pension for Americans..they only have a pension scheme where employees put their money...thus when they retire they get their monthly pension based on the money accumulated over the years...these pension funds are put into companies like Freddie Mac… Of course these banks also sell housing loans…and the biggest blunder being their subprime mortgage lending…
Now, in case they crashed, just imagine the scale at which people would be penniless!! thousands would go bankrupt in a matter of few hours...maybe that's why the govt decided to save it...
i dunno if it is right...just a thought...
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