Thursday, December 2, 2010

Fed aid in financial crisis went beyond U.S. banks to industry, foreign firms

The Fed it seemed just started handing out free money to every large company on the planet in 2008. Harley Davidson, Verizon, GE. "Too big to fail" apparently meant just about any public company. Meanwhile small business and the middle class were left to twist in the wind.

Just 2 months ago Charlie Munger (Warren Buffet's right hand man) made the case that it was a great thing that the Fed intervened and bailed out people like him. He then went on to say that everyday people should "suck it up" and not worry so much about their betters. He really said this, at least the "suck it up" part.

Lets be clear, these companies mismanaged their books. Yes it was a systematic implosion in fall of 2008, but the companies that the Fed bailed out were over leveraged. They took on too much risk in the good times, and when the winds shifted they were exposed. Thankfully (for them) the Fed shoveled gobs of money their way to save them from their mistakes.

Now I am against all bailouts, but on a grand karma scale, if the Fed is going to destroy the dollar anyway, why not just forgive all the mortgages out there. Just tell everyone - You're free. No more payments. Now go buy SUVs!

This is hugely unfair of course, and I am not really saying that this is any kind of viable policy, far from it, but it's slightly more fair than what the Fed really did.

We, you see are merely decorations on this planet for the people who feel they have the right to run the show. Why should they be subject to the winds of the market, as it is only we commoners who should have to deal with economic tempests. To the degree that we are living breathing annuities, buying tobacco, buying gasoline, buying loans, we are valuable. We are much less valuable to the guys that got bailed out when we are not buying.

And that's the deal. These companies got the loot from the Fed and then , especially in the case of the banks, pulled up the draw bridge and battened down the hatches leaving the commoners on the other side of the moat staring at each other and asking what had just happened.

I am a a capitalist through and through. I believe in the market and it's ability to find the real value of things. I know that capitalism makes the world a better place. But the economic system we have now led by the central planners at the Federal Reserve is anything but capitalism. I hate to say what it is.

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Nick Sorrentino is the Editor of The Liberty and Economics Review and CEO of Exelorix.com a social media management company.