Steve Kurtz
~ It's a beautiful world ~

Bailing out morons

March 24th, 2009

I’ve been having some trouble wrapping my head around this Bailout idea. Hundreds of billions of dollars are being given primarily to the folks who got us into this mess in the first place. Everyone who seems to know enough about the problem believes the bailout is needed, even if it’s not going to be implemented perfectly. I’m not convinced. Perhaps it’s because I don’t know enough, don’t have a background in Economics, and/or have trouble balancing my checkbook. Still, something about giving money to people who have a proven bad track record just doesn’t ring true.

Today I had the good fortune to hear Joel Naroff, a nationally recognized and acclaimed Economist, speak at a luncheon. Part of Mr. Naroff’s comments echoed those we’ve heard and read, indicating how the economy revolves around credit and the financial system bailout is needed. Why? Because the economy may not be able to tolerate the failure of giants like AIG. But he said it in a way that hit home (I’m paraphrasing here, but not much) – “Sometimes you have no choice but to give money to morons”. Thank You!

Sure, anyone can be a Monday morning quarterback. But Mr. Naroff went on to raise an important question: “If the failure of one company cannot be tolerated by the economy, should it be allowed to exist?” Bravo! Though easier said than done, this thinking could set the tone for preventing bailouts in the future. Perhaps the division of ultra-large corporations into smaller independent units would limit collateral damage should one fail. And he’s not the only one that thinks this way. Similar sentiments are popping up in a number of online journals.

In the mean time, what’s to say AIG and others will actually survive even after the infusion of so much money? And if they fail after all (which IS possible), where will we be? Wouldn’t we have simply been better off not to bail them out in the first place?

Let’s say we don’t bail them out. We let them go under. How do we keep their failure from wrecking the rest of the economy? Here’s an idea. How about if we give the money to institutions with a good track record, with the instruction that they should take over any failed institution’s operations? Wouldn’t people with a good track record do a better job infusing the bailout money then people with a bad track record? Wouldn’t that also be praise for those who have been good for our economy, and punishment those who have not. Granted, I don’t know how to do that, but there are some really bright people out there that probably could. OK, that opens the floor to you pundits out there … have at it.

As folks who understand Economics far better than I struggle with bringing the Economy back in line, I wish them luck. I can only hope we learn some important lessons from this fiasco and try not to let history repeat itself. Our children deserve no less.

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