Well, without sounding too much like Gordon Gekko, I have to say greed is what drives this capitalism we have, without it, we might as well become a communist country and let everyone enjoys the same income, benefit and everything else.Originally posted by: HendrixFan
Inflation and national debt make the current crisis worse, but they are not directly the problem. The reason we have inflation (from printing money and from too low of interest rates) and a huge national debt have the same root cause as this bailout. Unchecked greed, greed that will stop at nothing, including long term harm, to win in the short term.
The 1% interest rates caused a huge jump in investors flowing away from treasury bills and towards MBSs in 2001. By 2003 all the "solid" MBSs had been sold but the market was still hungry for more. That is when lending standards started to drop and a long chain of companies started to act irresponsibly. You have the huge house of cards that hold a trillion or two in housing but is leveraged and credit default swapped up to $530 trillion. It is the $530 trillion that is in danger of falling and taking out our economy, the couple trillion in housing is small potatoes. However, it is the housing that is holding up everything.
Meanwhile, by having to bailout the companies, buy up mortgages, put out stimulus checks and spend our way out of the problem; that is where we run into the national debt and inflation being an issue. On a micro level, when you have a sudden emergency that you have to pay for, and you dont have the cash to cover it you usually charge it or put it into debt somehow. If you are already neck deep in debt and the interest alone on your debt is 15% of your income, then adding a new large debt is an issue.
The problem we are facing is an inherent problem of this type of capitalistic market, greed (or the drive for profit) created lots of new financial instruments, many are very useful, options, swaps, futures, but some causes problem, like the ones with Enron and the ones with MBS. Greed and the drive for profit will also create economic cycle, a boom and then a bust because as people try to seek profit, there will be over buying of certain asset during boom, and that will create bust, like the tech bubble we had and the real estate bubble we are having.
Is all this bad? well in my opinion, there will never be a perfect economy or society. US has been very successful with the current capitalism, and the crisis we have is just a price we have to pay for having greed/profit driven economy. So I hope we don't get panic because of the this natural cycle we are experiencing and change the fundamentals that has make this economy so successful.