Thursday, July 17, 2008

Fanny and Freddy and Indy, Oh my!

This has been a very interesting economic week overall. It included the second largest financial institution to ever fail, Indymac, being taken over by the FDIC this past Friday, Sunday the government promising to bail out the mortgage finance giants Fanny Mae and Freddy Mac, yesterday the Dow jumping up more then 200 points, and today oil falling under $130 a barrel.

This has been a week of government regulations and a small economic upswing, which seems to imply that the government intervention is causing the boost in the economy, but I beg to differ. The cause of the increase in the Dow was the increase in bank stocks. Banks stocks finally bottomed out and investors started to buy. This is economics 101, if a price drops low enough, people will buy as an investment, then the stock will rise. Once stocks begin to rise the economy goes up. Behold the power of the free market. A lot of people will make the argument that the government backing of Fanny and Freddy gave people enough confidence in the market to buy, but really I think its as simple as low prices equals buyer prices.

Free market economics has always been a source of debate in this country, it's really the essence of the on going battle between our two lovely primary political parties, but I would venture to say that this is true even more so now. Currently "free market" almost is teetering on the line of buzz word. You hear it thrown around all the time in political forums and blogs. You can't talk about the economy with out hearing it dropped into the conversation, so the main stream public is really starting to think about it, whether it be positively or negatively. Personally, I am pro. I do not believe that there should be third party regulation of prices or consumption. My basic philosophy is let it ride and the market will take care of itself, as we have seen in the past.

Here is where I flip just a little, while I'm for letting the overall economy do its thing, I am also for social welfare programs. Our tax money should not go towards bailing out Fanny and Freddy, or any other big name business in trouble for that matter, but instead insuring that the lower rung of society's quality of life meets a certain basic standard. The best policies are those that let everyone move up in the world, and to help those who may have a harder time getting started in that process. It is a common idea that you can judge a society by the status of it's lowest citizens. If we can use our tax dollars to insure those who need money get it, we can go a long way to improve the life of the lower class, along with boosting the economy. Almost every dollar that is put into the hands of an individual of lower socio-economic status will be turned around and directly put back in the economy. So why not give money back to the people that really need it?

But as it is now, we are half-assing it both ways. We try to regulate some parts of the economy but not others, we put in place government welfare programs that only kind of work, and then we expect (depending on who is in power) for the economy to fix itself even after we've begun those counter productive regulations. Why not take all of that wasted money, put it towards a few really good programs, and get rid of the rest of the government interference and bureaucracy? You know, cut out the fat. Seems like such a simple solution for such a seemingly complicated problem. But when talking about the economy, this is one time where more money really is a viable solution.

Yeah, I know, I'm too idealistic, we can never be that efficient, but, then again, maybe we can. Either way, wouldn't you like to find out?

1 comment:

Anonymous said...

I don't really see what the problem is. A bunch of politicians got together and said lets create a federal loan program for consumers who cant afford to miss buying their lottery tickets, so institutional investors can pump up our IPO stock price making us a killing. In the meantime, we'll deregulate the industry allowing our loan programs to pass through without credit checks, again making us a killing in the market. What the heck, its not my fault that guy didn't win the lottery.

Phil Gram

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