Tuesday, October 21, 2008

Another Stimulus? Who Would Benefit?

The markets rallied yesterday after news that Federal Reserve Chairman Ben Bernanke was in favor of a second economic stimulus bill. A bill that has been introduced by Democratic leadership. Who would benefit here? Bernanke is clearly trying to keep his job as we move into a new administration, and it will help him if he starts agreeing with Democrats. The problem with allowing Washington to spend taxpayer money, they'll continue to do it. And that's what we're seeing. First, the government sponsored loans to prevent Bear Stearns from collapse, than the seizure of Fannie Mae and Freddie Mac, then the huge bailout bill, then the buying of equity stakes in banks, and I could go on. It won't stop either. That is the problem with going down this path.

Its time that we wake up and realize that these bailouts aren't going to help us in the long run. The economy goes through cycles. Excess risk and poor management leads to bankruptcies. If you don't allow the bad companies and their management to fail, they will only repeat the process in the next business cycle, making it worse. I agreed with securing people's bank deposits. Beyond that, I'm not in favor of additional government action.

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