Tuesday, October 7, 2008

Government bailout exactly as expected

This should come as a surprise to no one. After being initially extended an 85 billion dollar loan, prior to the even greater 700+ billion dollar "rescue" bill, AIG spent close to half a million in one weekend at a luxurious corporate resort. Now, of course they have every right to spend as much as they want on expensive hotels, golf outings, and cockails, (see link for full story - http://www.foxbusiness.com/story/markets/industries/finance/aig-executives-blow--getting-bailout/), but if the government hadn't loaned them 85 billion, that's billion with a B, they would be doing it on their own dime instead of on yours.

This is of course, just one problem with the government funneling public funds to private corporations or individuals. Now, while in a desperate situation where every dollar must be spent wisely, these corporations can continue to make irresponsible business decisions.

Look at it this way, when your money is tight, and you're facing bankruptcy, you can't afford to take vacations. But in the case of these businesses, the influx of public assests not only alleviates their budgetary concerns, it also allows them to continue doing business as they have. So instead of being forced to confront the bad business decisions they have made which have brought them to this place, they not only perpetuate them, but now they can figure a government bailout into their future risk assessments.

When you don't allow the natural consequences of someone's actions to occur, you divorce cause from effect. By doing so, we have reinforced in the minds of the men and women responsible for the current global financial crisis that they will not be held accountable for bad business decisions.

Unfortunately, there is a limit to the amount of public funds which can be generated through taxation. At some point, even 100 percent taxation can not support a system where the productive sectors of society are forced to subsidize the non-productive sectors.

It's a house of cards, and it's coming down.


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