Monday, September 08, 2008

Bailout of Fannie Mae and Freddie Mac

Stocks rose after the Mae and Mac bailout. Of course this has short term economic benefits, but it has long term consequences. The government assumes the debts owed by these companies and adds it to the already high national debt. Private companies are encouraged to take bigger risks on the assumption that they too will be bailed out by the government. When some of these companies do land in trouble, whoever happens to be POTUS at the time will be pressured to bail them out and take on more debt.

Capitalism involves risk. If somebody takes a risk by investing in an untested technology, they either make a profit, take a loss, or break even. It's important for investors and companies to suffer the consequences of failure, so that they learn what they did wrong and avoid repeating the same mistakes. Avoiding failure can be as much a motivator for achievement as success.

2 comments:

Rabbi Lars Shalom said...

well....captilism

charles said...

Democrats created the Fannie Mae and Freddie Mac problems years ago, in a well intentioned but failed effort to allow low income groups to buy houses. They stopped ALL eforts at reform until it was too late. Now they are trying to blame Bush, McCain and Republicans, everyone but themselves. That's the Gods truth and here is the proof:
http://strategicthought-charles77.blogspot.com/2008/09/democrats-created-fannie-mae-and.html