Wednesday, September 24, 2008

More on the Financial "Meltdown"

I'll preface this by admitting that I have absolutely no idea how the financial markets work, and have no financial stake in the stock market at all. Having said that:

Years ago, when someone owned stock in a company, what he/she owned had an intrinsic worth. Those shares in XYZ Company were a fractional ownership in the company, and the assets of the company gave shares a true, tangible value. That has changed now. Now many companies have no inherent worth, but simply are companies whose only business is owning other company's stocks, which companies own yet a third company's stock, etc, etc. So at the bottom of the food chain, the shareholder is holding a piece of paper, whose only value is what someone else says it is worth. Everything further up the chain is all "smoke and mirrors". Is it any surprise that such a system must topple sooner or later?

Now add to that the fact that somewhere in that food chain, there is someone who is less than completely honest, and who realizes that if the supposed value of that piece of paper is jacked up, it becomes more desirable, and so more shares can be sold and so he/she can make more money, and his/her company becomes worth a lot more because of this sudden added value. Starting to sound familiar?

I honestly don't know if the proposed bailout is necessary or not, to "save the economy". But there are some features about it that certainly raise red flags in my mind.
"Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."
Those words, straight from the bail out plan, scare the pants off of me. They put the Secretary of the Treasury completely outside of and above the law of the land. For the life of me, I can't think of ANY way to justify that.
The plan also basically is giving a huge chunk of the economy over to Federal control. And since there is good evidence that much of this mess was caused by federal control, why on earth do we think they will do any better job in the future?
In July, the feds gave something in the neighborhood of $400 Billion for protection of those holding bad mortgages and in danger of foreclosure, remember?? WHERE IS THAT MONEY?? Why are we paying twice?

I'm getting long-winded here...... a link to an article that talks about some of this"derivitives" stuff which I found helpful

http://finance.yahoo.com/expert/article/yourlife109609;_ylt=AihYXGa_2tf9PJDeCl.2G0S7YWsA

1 comment:

Jeremiah said...

You are very correct. There is so many parts of this that none of us understand. Plus the government is to quick to give away money in the "HOPE" that it will help.

I have not heard any hard facts about how it will help, all that is out there is a bunch of scare tactics trying to convince us the taxpayers that we need to do this "or else". Most important, this bail out will put large portions of our country's economic system in the hands of a group that has proved time and time again they are not capable of managing it, namely the Federal Government