This last week I was among some peers where one woman was telling us a story about her purchase of a plasma television, that after two years, had ceased to function. She called the manufacturer who pointed her to two local repair companies.
The first came out and explained to her that the television's life and usefulness had ended. The power supply and other components were listed as bad. She was told a replacement (at her cost of course!) was the only solution. Frustrated, but resigned, she decided to look at a new one from Best Buy...who would of course pick up and remove the old television when they delivered the new set.
Luckily, she had second thoughts and asked the second repair company to come have a look. It seems that only a single, small part would need to be replaced and the television was functioning again. One-to-two thousand dollars of their family's hard earned money was saved.
Now the take away of this story is simple. The person who purports to be the expert in fixing your broken product may be anything but and listening to their advice is going to be costly.
Let's analyze the situation of our economy and the steps being taken by the Obama white house, Geithner, Barnacke and the rest of the government "experts".
They claim that certain banks, insurance companies or financial institutions are "too big to fail". They state that the inter-connectedness of this institution is such that if it goes under it will pull down one, more or even many along with it. Now understand the institution became so large because of lack of oversight (either from the beginning or removed by the government) and tried to expand by investing either directly in the so-called exotic financial instruments (credit default swaps and mortgage backed securities) or in companies that did. Investments like this involve risk and if the products were successful the financial institution and it's bond holders and investors reaped a return but nothing was given to the general taxpayer.
The problem is that risk is risk. If you are willing to place your money into such instruments there is no guarantee that your money is safe. The swaps and mortgage securities listed above are NOT guaranteed by the government or anyone else. It is an open-ended bet with no net to catch you. Yet strangely enough we are being told that yes...the government is going to cover those failed bets with taxpayer money. The credit default swaps created by companies like AIG have resulted in losses in the billions and perhaps trillions of dollars. In each case two companies arranged a sort of insurance to cover the value of mortgage backed securities with one or both being undercapitalized (because of no legal oversight by the government) for the risk. That risk became apparent, the companies floundered and the federal government rushes in with taxpayer dollars. They are not being held responsible for that risk. WE ARE. Ridiculous.
What needs to happen is a complete overhaul. First, financial "experts" like Barnacke and Geithner need to be fired. Anyone who purports that there is a need for exotic financial tools like credit default swaps and mortgage backed securities needs to be kicked out. These have never been products that help "main street" and we should not be held accountable for them. The mistake has been and continues to be that banks should be allowed to make extra profits beyond the services they supply to their direct customers via business and retail loans. Intertwining these other unregulated instruments has resulted in a cancer that holds all of us hostage.
So what is the solution? Not one penny more should be given to any institution to cover credit default swaps or mortgage backed securities. For companies like AIG they should be placed into receivership, sell off the valuable and stable divisions and close down the groups that trade in the exotics. Those who put money into them...have lost it. They. Them. Those who took the risk and lost. Any financial institutions that have illiquid mortgage backed securities should be forced to mark them down. Congress and the White House should make it immediately illegal for regular banks to delve into any exotic financial instruments. If companies wish to do business with such tools they can run as separate corporations but with the big monikers on each document that reminds investors that these are not guaranteed and they accept full responsibility for the gains and losses reaped from them.
You see the point is the "professionals" who are telling us we must keep these companies afloat by pumping trillions of taxpayer dollars are simply wrong. Paulsen, Geithner, Barnacke and their respective administrations simply do not have a clue. Putting us trillions of dollars in debt and using your and my tax dollars to absolve the failed risk incurred by other investors and companies who wanted to make huge profits off of the unregulated, non-guaranteed financial instruments is ludicrous.
