Thursday, September 25, 2008

Nothing Funny about Funny Money

Hey, remember when money was something you had to earn and put away in order to purchase something, especially something big like a house or a car or a million dollar company? At some point we forgot about that little financial crisis called the Great Depression and banks had the brilliant idea that they should lend people hundreds of thousands of dollars that they didn't have so that these people could purchase things they couldn't afford (or usually need) like big, fancy houses with heliports and heated swimming pools. This money could be paid back over up to 30 years at an interest rate that seems fair only if you don't do the math. What a great deal...or not. The mortgage crisis, it turns out, has only been the prologue, to what is turning into an epic financial disaster in this country. While individuals do need to take responsibility for their financial choices, home buyers were really just the pawns in this mortgage fiasco (and pawns are easily pushed around). The lenders, like Fannie Mae and Freddie Mac, were the Kings and Queens that were making loads of money while individual home buyers sunk themselves farther and farther into debt. The American government couldn't let the King and Queen go down , it might hurt the position of the pawns that they had pushed around. So, the King and Queen (aka Fannie and Freddie) were rescued from the mess the made so that the pawns would not completely abandon the chess board.

Of course, this mortgage crisis was only the tip of the iceberg in terms of financial disaster. How could banks lend out all that money neither they nor the borrower had? Investments! Yes, take the small percentage of money that the borrower gave to the bank towards their massive loan and make it grow by funding other corporations. Sound risky? While, it was and still is. From what I can understand, investment banks don't work too well if people are not making investments.

The whole system sounds pretty much broken to me. Apparently, the already financially strapped people of Main Street America are supposed to now support throwing another 700 billion of their tax dollars at what seems to be a sinking ship. This seems like a recipe for disaster.

So far, the politician who has the most logical response to this crisis is Vermont Senator Bernie Sanders, who said, "if a company is too big to fail, it is too big to exist." So, perhaps it's time to stop propping up dangerously large corporations and figure out how to stabilize the economy by spreading out the wealth.

Just a thought.

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