Thoughts on Geithner's Bank Plan

It's basically the worst possible "investment" for taxpayers, and the best possible deal for banks.

It's sort of complicated - I need to be a bank investor now to hedge against all the long term damage that is being caused.

Imagine your friend came to you with an opportunity:

"I have this mortgage portfolio I think you should buy, if you put up $1,000, I will match it with $1,000. If the investment makes money, you and I will split the gain, which is expected to be $2,000+. If the investment loses money, you could lose a maximum of $150, I will assume the rest of the loss."

This is about the best possible deal for banks I can possibly think of! Anyone would be crazy not to take this deal - I wish I was being offered this deal!

Hence the huge rally yesterday.

However, you cannot create wealth by printing money. Even if you stamp "Change" and "Hope" on the bills and put a picture of Obama on it, it still won't work. Its really amazing how many intelligent, Harvard educated economists do not understand this fundamental law that has been in existence since currency was invented.

In some regards, it is difficult to predict the repercussions of this unprecedented spending. However, one thing is certain: there will be inflation and higher interest rates in the future. If you do not own a house or are considering upgrading I would do so - when inflation hits you will want to own hard assets.



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AIG & How the Government has Failed

The liberal mantra dictates that you need government to protect society from evil large corporations. As applied to AIG, many believe the company was simply "too big to fail", and that allowing it to fail would have guaranteed "the greatest crisis since the Great Depression" (how many times have we heard this). To this, I say... hogwash.

The reality is that there are plenty of well capitalized, non-bankrupt insurance companies that would be interested to buy parts of AIG's business. This happens all the time in the FREE-MARKET. Will some parties lose money? Of course, again this is normal in the free market.

Do you know where the $165 Billion went? Well over two thirds of it was given to FOREIGN banks, who were paid 100% on the dollar for their investments with a company that went bankrupt. Explain to me how paying back foreign banks in full, that would normally receive pennies on the dollar, benefits the US economy?

For all the mistakes AIG made, consider that those who make investments with them are responsible to conduct their own due diligence and accept risks for making investments. It's silly that the US government bailed them out just so that foreign investors could be repaid. The alternative was that their assets would be sold off to other, healthier companies. This is the natural flow of business and it is how wealth is created.




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Why Wealth is Concentrated Among the Few

I often hear the argument that the wealth gap is widening, which is used as a criticism of the Bush administration. Well, the poor may control a lower percentage of the world's assets, but their standard of living has never been higher! Amenities such as air conditioning, automobiles, televisions, and telephones were not available to most just a few short decades ago. People have reacted to advances in technology and the availability of cheap goods in different ways, but one thing remains constant: The rich purchase assets, and the poor consume goods.

Wealth will always be concentrated among a small minority of people. There is nothing you can do to stop this and it has nothing to do with our laws or public policy. The reason few people control most of the wealth is that the vast majority of people never learn the skills to create wealth! This even includes many highly paid people who still own very little. It is up to each person individually to decide whether they want to be wealthy and then take steps to accomplish this. There is absolutely nothing government can do to create this situation - government can only destroy wealth.




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