The most recent stock market crash will forever be remembered throughout history for being the largest drop in stock; even greater than Black Tuesday in the 1930’s. Who would have guessed that something that large could ever happen again. Hopefully, we will not experience such a devastating depression as there was in 30’s. As a result of the crash, the government has decided to bailout the banking sector of Wall Street. Good move? Not so much. In reading a commentary article from economics lecturer, Jeffery A. Miron, from Harvard University, I discovered much more about the future implications from the government economy patch than I had realized. Those who plan to keep their money in banks should be concerned with just who will be making decisions about their money, because the future of our country is at risk.
The bailout, to those who only see the surface, seems to be a great fix for an economy that is failing. At first, I was this person. Luckily, my economics class has intrigued me to look further into just what will result from the government bailout. My eyes have been opened.
Jeffrey Miron explains that the government, in an effort to help an ailing economy, is planning on buying stocks from banks in order to help banks increase lending, and thus “minimizing the chance of a recession” (Miron). On the surface, this seems like a favorable idea. People see quick surface results for a big problem. But what most people do not realize is that the government of the United States will become a significant stockholder in banking, and thus a big decision maker for what will happen in the future. As scary as this may sound, it is now a reality.
What does this mean for the future? The Government will be able to control banking decisions based on party beliefs, not what is best for the economy. Miron goes further to explain that there is no guarantee that the government will relinquish its holdings once the economy is better, as they so claim. “This is crony capitalism, pure and simple” (Miron).
It was this line that caused concern. Our government has found a way to gain more control over its citizens than it should have. As more and more people realize this, will they lose their faith in banks and refuse to use them? Without a way to enforce the government’s relinquishment of stock, will it follow through as it claims? All of this uncertainty will cause people to possibly not use banks, making it harder for stability to be reached. What appears to be good for the economy immediately will only cause more problems down the road.
Thus, what can be said for the new government bailout? It is a temporary fix that could lead to even greater problems in the future. Principles of economics state that the market will take care of itself without intervention. Unfortunately, the government now has greater control of decisions made with citizens’ money, and thus, potentially, greater control of our lives. Adhere warning because the bad might just get a whole lot worse.
http://www.cnn.com/2008/POLITICS/10/14/miron.banks/index.html
4 comments:
Great post--and informative, too. I have a question, as I'm not as well-versed as you are on this topic. You wrote: "Our government has found a way to gain more control over its citizens than it should have. As more and more people realize this, will they lose their faith in banks and refuse to use them?"
Why would I (or the average American with a bank account)lose faith in the bank if I know the govt. has secured my money?
I hope others read your post!
I guess it depends on whether you trust the government to direct the economy in an honest direction. I certainly don't.
The tricky part is the government controlling the stocks of the banks. With the stocks, they can control the operations of the bank. If they control the operations of the bank, they control the flow of money into the economy. If you trust the government, then you're ok. But if you're afraid the government might take advantage of this and use it to secure its own seat of power, then there's a reason to be afraid.
Wow. This is a very intriguing post. It did a wonderful job of putting the current United States economic status into perspective, especially for me. I am aware of what is going on, but have little understanding of it. I feel like the economy can be really frightening because of the uncertainty that coincides with it. I feel like it is very important for the youth population of America to observe what is going on in our economy, because it will soon be in our hands.
I really hope that the government does something to intervene with what is currently happening. However I feel that if the government buys too many stocks to help the market, our federal deficit will furthermore increase and create other problems.
What is the right thing to do? Does anyone know?
I truly agree with your point of not letting the government have that much power over the economy, but the problem is that if we are going to let go of the market, we need to do it completely. We cannot try to adjust it in some ways and leave others, or we will force ourselves to do exactly what we had to do. The bail out was necessary, but the situation as a whole should have been prevented with the billions of dollars that we are paying to see that it doesn't happen.
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