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Posted: 11/28/2008 03:01
 The financial services industry overextended itself by offering credit to people with insufficient motivation to pay back the loans. In so doing, they created false value in real estate for which there was inadequate demand. Like any other business that overestimates their market, they got caught holding too much inventory. In strict free-market terms, this would simply mean a discounted sell off of that inventory, perhaps by a bankruptcy court, or otherwise. If the entire industry failed, as so many have in the past, it would be unfortunate for those directly involved to be sure; but, historically speaking, a new, more highly evolved version usually emerges that better meets the needs of the consumer. Our current problem is based on the fact that this excessive inventory has been passed on to our big money institutions. They have been left holding an inventory that has lost its value in the free market, and shows no signs of coming back. As a taxpayer, I'm not sure I want to buy something that I know is overpriced, and that I won't be able to sell at a reasonable profit. On the other hand, the credit industry is a vital part of national and global free market economics. Loaned money creates a contract between the providers of goods and services, and their customers, that could not otherwise exist in an enforceable state. In local terms, if the bank on the corner fails and closes (rather than being bought out), I can't get my paycheck cashed. Consequently, the little guy has a vested interest in the survival of the big money institutions. Some have said that there is plenty of private capital sitting on the sidelines waiting to scoop up these financial instruments when the price is right. The free market economic view would dictate that the government stay out of the mess and lets the private money step in when they see a bargain. The question now for Congress and the President is not only what to do, but how much. They must protect the financial infrastructure, but sending too much money at the problem only continues to overvalue financial instruments for which the market is rapidly declining. If they stand back and wait for private capital to intervene based on bargain shopping, the institutions that support commerce my cease to exist. Loud Noise Productions |
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