The Only Answer to the Financial Crisis

In the continuing story of bailouts and seemingly endless supplies of government money, I take some solace that taxpayers are at least getting something for their charity.

Insurer AIG is getting another $40.0 billion, but at least the government gets some preferred shares that pay decent interest, along with a bunch of warrants. The banking industry has been far more skilled at negotiating better deals for the bailout cash. The government is buying mortgages and the banks are keeping the capital to shore up their foundations. The goal of increasing credit flow to consumers is not yet quantifiable, but it’s likely that the banks will just keep the money for their own use. Wouldn’t you?

I still can’t get my head around these large bailouts, yet I do see the pros and cons of both sides. Right now, the only decent example of how they should be applied is AIG. An ownership position with interest — that’s far better than just giving them the money or taxpayers buying already tarnished assets.

I think the government should consider a similar approach for the auto makers. It just doesn’t seem right to go and give them $25.0 billion, just to end up with the same structural problems in a couple of years. Instead of an ownership position, government could consider energy efficiency goals. How about $10.0 billion for GM, and they have to use half of that money to build a fleet of electric vehicles? If the government is going to be charitable with taxpayer money then it just has to have some conditions.

I think it’s very likely that the next 12 months will see an enormous amount of new economic policies from government, and they’ve got to get them right or we’ll end up in worse shape. Money with conditions is the only answer.

The other worry, of course, is where the money is coming from. The printing presses are running in high gear and, in a few years, we’ll have an onslaught of other economic shocks to deal with. Gold is looking better all the time.