Bailing Out The Problem
The bailout provided to Wall Street by the government seems to have helped the economy stabilize... for now. Its purpose of helping the same financial institutions responsible for the economic crisis has been successful, but now many investors have been scared away from the market. When the Dow fell 2,400 points at the beginning of the month, an incredible amount of money was lost to many Americans -including in many instances life savings- forcing many people to sell their stocks, which contributed further to the problem.
According to the Associated Press, "While it takes an average of 3.6 years for investors to break even after a bear market, recovery can take much longer. It took 7 1/2 years for stocks to regain their losses from the bear market that accompanied the 1973-74 recession." Not only was the U.S. economy at stake, the Bank of England, European Central Bank, Swiss Central Bank, Riksbank of Sweden and the Bank of China were reported to have cut their interest rates in order to counter the effects of this now global crisis.
What the American public has to take into account is that the people most affected by the economic crisis were not meant to be helped with this bailout.
Former assistant secretary of the treasury (during Reagan) and Associate Editor of the Wall Street Journal Paul Craig Roberts, said in an interview with Democracy Now, "It suggests that the bailout is either incompetence or fraud, because the problem, according to the government, is the defaulting mortgages, so the money should be directed at refinancing the mortgages and paying off the foreclosed ones. And that would restore the value of the mortgage-backed securities that are threatening the financial institutions. If the value was restored, the crisis would be over. So there's no connection between the government's explanation of the crisis and its solution to the crisis." Now the Bush administration wants to nationalize the banking systems to the tune of $250 billion, as a way to prevent another economic crisis and repair the current situation.
The bailout plan was criticized by Democrats and Republicans, due to the fact that it doesn't fix the problem. It was sold to Americans as necessary to save the economy, which in turn was affecting the world economy as well, making the bailout plan seem like the only possible solution to the problem. But as critics of the plan have argued, this bailout is not about solving the economy while rewarding the institutions which should be punished for their contribution to the crisis. On top of that, many directly affected taxpayers are the ones saving them. The secretary of the treasury will regulate how the $700 billion given would be used. This number came out not from a planned and calculated equation, but an estimate, which raises an alarm as to how much money will be actually given and to whom, as it has no accountability since none was provided in the plan.
The larger problem is that Americans don't know that this is only a momentary band-aid to a larger issue. While deregulations were blamed as the New York Times reported, "This crisis is the result of a willful and systematic failure by the government to regulate and monitor the activities of bankers, lenders, hedge funds, insurers and other market players. All were playing high-stakes poker with the financial system, but without adequate transparency, oversight or supervision." The main problem lies within the economic system itself. An example is The Great Depression. In the 1930s, when the Great Depression was beginning to engulf the U.S., the government believed that it shouldn't be involved in helping the people mostly affected by the "Invisible Hand of the Market" regulating itself and fixing the economy. This capitalistic belief got the country further into poverty. Changes were made with Roosevelt's "New Deal" on government involvement in the market, but the reason the U.S. got out of the depression was World War II.
Nowadays, the extent of government intervention exists in the form of subsidies, tax credits, incentives, and other types of exemptions that are beneficial to the corporations to make profit but do not prevent another falling of the market or economy like what the U.S. and the world is experiencing right now.
Capitalism, being a "boom and bust" system, is the real cause of this financial crisis. It is a system of greed and overproduction, which concentrates of making profit at all costs.
The U.S. and the global economy may be safe for now, but when it is the economic system responsible for allowing a financial crisis to happen, as long as it is in place it is only a matter of time before it happens again.