This is how capitalism works

Full disclosure: I’m not an economist, and my high school economics course was taught by a Democrat, who did not teach me the things I’m about to say. Also, I don’t really know what I’m talking about.

In a beautiful demonstration of capitalism at work, J.P. Morgan Chase bought WaMu last night. Captain Ed notes that Chase eventually will run out of money to buy these banks (they also bought Bear Stearns earlier this year).

First off, if Chase runs out of money to buy up failed banks, other winners will step in and buy the other losers. They can buy these banks for cheap and use good business practices to build up what they bought into something good. My first reaction to the news was, “Chase bought our bank? I’m fine with that, because I’ve been pleased with them.” We do other business with Chase, and they’re fairly breezy to work with. Bank of America would have been a different story, because the second they bought MBNA, they raised the interest rate on my credit card with them by ten points. All that does is tick people off, and I no longer use that card. Ever. My second thought was, “Hey, this is how things should happen. Let the government seize them one at a time and sell them off, rather than the government buying them all, hoping the assets that back the bad loans appreciate in value someday, and sticking it to the taxpayers when they don’t.”

Second, this is capitalism (for now). Yes, the people who have invested in WaMu are going to lose a lot of money. That’s the way things go. If WaMu had done well, the investors would have gained a lot of money. You invest your money wisely, you make money. You invest your money in a bank that loans out its capital to un-creditworthy individuals, you lose money. If you don’t like that they’re making bad loans, you take your money elsewhere. We’ve known for a few years now that these bad loans were going to make a lot of trouble.

Yes, it’s sad that people will lose jobs. It happens, and that sucks. But it isn’t as bad as socializing the economy. The Paulson plan was a bad plan, thank goodness it’s pretty much defunct. And Democrats were making it worse. They’d slipped in unsecured credit card loans, bad student loans (also unsecured), and other things that the government has no business helping. I mean, just think about that. Bad credit card loans. They’re not secured, so there is nothing the creditor can do to get the money back, other than threaten to trash your credit. So if I default on my credit cards and don’t pay them back, and the government buys up my credit card debt on the *hope* that I’ll *change* my mind and pay them back, and I never do… then you, the American taxpayer, have to pay for things like my wedding ring, my honeymoon cruise, my dog’s heartworm pills, that guitar I’ve always wanted, my new stainless steel refrigerator (I mean, the white one just wasn’t pretty enough)… do you see what a bad idea this is? Say I run up $10,000 in debt, maxing out my credit line. I make my minimum payments, and then one day, I get a bonus (HAHAHAHAHAHAHAHAHAHAHA). I decide to pay $1,000 on my credit card, which is still sitting at about $10,000, because those minimum payments barely cover the interest. A few weeks later, I get a letter in the mail from my credit card company: my credit line has been increased by $2,000. And we know it’s because I paid more than the minimum payment. It’s almost automatic. So I run up $2,000 more buying that new plasma TV I just have to have. And then, you know what? I don’t feel like paying my credit card bills anymore. So you, the American taxpayer, have just bought my plasma TV, my beautiful diamonds, my jaunt to the Caribbean, and that lovely icebox in the kitchen. And you know what? I’m not even going to thank you, because I feel like I was entitled to all that stuff, because some of you have the same things. It’s not *fair* if I don’t have them too.

I have to go to work now. I don’t know where I was going with this post. I only know that history tells us that you never just have socialism for a little while. You can’t just decide you don’t want that social program anymore, thanks FDR. You have it forEVER.

Later I want to talk about how if the government buys any bad debt, they’ll be able to lock up anyone who doesn’t pay and isn’t connected to a Congressman. I mean, if the government could actually keep track of its money.

4 Responses to This is how capitalism works

  1. A big fat “YUP” from me.

    I’m glad the unsecured credit card debt is off the table (at least for now). It really burns my biscuits to think that I would have the privilege of “paying” for stuff other people bought – when there was stuff *I* really WANTED, but didn’t buy – because I knew I couldn’t afford it and I was raised to fulfill my obligations (like paying off the credit cards).

    I also know someone who just paid off her student loans – and was proud that she was finally able to do it. What would it say to her – “Being a responsible person and doing what you agreed to do is for chumps!”

    I’m really sick of a culture that seems to be telling us doing the “right” thing is for “chumps.” (Or, the segments of it that claim there is no “right” and “wrong.”). The bailout is kind of related to this, in my mind.

  2. Your last point is a very strong one.

    What happens when the credit card debt is government owned? Will they send a government agent to your house to repossess (e.g. take away) the items in your home?

  3. Darlin’ I’m also not an economist, but I did take many MANY classes in college and I’ll just tell you….I couldn’t agree with you more.

  4. Your pretty much right on with much of your post. One thing that should be noted however is that those bad loans were REQUIRED to be made by our fine friends in Washington. Most knew it was a bad deal going in, but when that opinion was voiced it was answered with cries of racism and not looking our for the little guy. Many democrats openly bragged about this program of giving loans to people who could not afford them. The only thing that kept this scheme going for as long as it did was that home values were going up, and when they couldn’t make the payments ready buyers (other suckers) were found. Once that turned around down it all came.

    What separated the good from the bad as far as the banks go is with the fact that many of the banks that made these bad loans didn’t hold the paper but sold them off to other banks and holding companies that sought to profit on the turnover. No turnover, no profit. No profit, no bank.

    The heartbreak of today is with the people that trusted their money out there in the marketplace that had no control over where it was actually invested. They were blindsided, and they stand to lose their retirement or other future income due to others having their money invested in this pyramid.