We do need the bailout. I am in no way supportive of an average CEO compensation package being, according to SEC Commissioner Roel C. Campos, 400 times more than the average employee’s compensation. We know now that the bailout comes with limits on this, as well as giving the taxpayers a chance to get back money or make a profit in the future when the government buys up these bad debts. The government will be taking a stake in these companies who seek the help of the government. I am a huge fan of this because it is regulation and we need it. Bad.

Time for Regulation

Call me a socialist, I probably am, at least comparable to what Europeans are. I liked economics in school and I did well at it and the one thing I remember very clearly were the “sterile” models that were used for, well, everything. “All other things being equal” sound familiar? In real life, everything happens at once, its not standing still. The formulas used to calculate the derivatives, and indeed derivatives themselves, have been criticized by Warren Buffet as “financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”

Derivatives, according to the New York Times, are “exotic contracts that promised to protect investors from losses, thereby stimulating riskier practices that led to the financial crisis.” Alan Greenspan and other members of the Fed fought for years against any kind of regulation for these derivatives, with their rationale being the private sector and the markets would act responsibly and that Wall Street could be trusted. Really?

My issue with so much of this stems from one very, very, painfully basic concept of free trade that you learn in basic microeconomics: Once government is introduced, free markets no longer exisit. No country on the planet has free markets; tariffs, taxes, social programs, tax breaks, tax cuts, tax credits…these all mean NO FREE MARKETS. The simple supply and demand graph gets all crazy when government is thrown in, meaning things cannot reach equilibrium. Equilibrium is the lifeline and purpose of free markets.

I don’t understand how so many people can preach about free markets without realizing that our (foolish) commitment to them is actually hurting us. Other countries are taking advantage of our low tariffs (such as Honda and Toyota selling their cars here at very low prices) and then putting high tariffs on the goods we send (our cars in Japan are much higher in price because of Japan’s tariffs). This is not free trade, free markets or competition. Look what this has done to the auto industry.

Moderation vs. Excess

Obviously, our point in this country with regard to free markets is to lead by example. But with the European Union growing substantially and having a higher GDP and population than the US, how can we continue to do this? Maybe its time to get in and play the game. Get some money, reap the benefits of being a big player. Dont’t let other countries take advantage of us. Let’s regulate some, protect what’s ours and encourage true competition by working to set even tariffs or be prepared to raise ours in certain cases.

The Bailout is the first step to regulation and I really hope that it is done in moderation, because as much as de-regualtion has been loved by most in this country, we will all now suffer because of the excess of the elite few. Moderation is key. Its time to get in and play the game.