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Bailouts Are Wrong

I understand what the Federal Reserve is trying to do, but bailouts are just plain wrong:

The extraordinary measures were made necessary, in the view of the policymakers, by the most dire threat facing world financial markets in years. Bear Stearns, in particular, was confronting a run on the bank as investors were too fearful of the future to make even overnight loans to the nations’ fifth-largest investment firm. If it had been allowed to fail, senior officials believed, it would have created a cascading crisis of confidence that could well have brought down several other leading firms and dragged world markets with them.

Policymakers weighed that risk against the risk that their actions would create “moral hazard,” or greater willingness of companies to take inappropriate chances. The officials stressed that their efforts were meant not to save shareholders of Bear Stearns or any other company but to keep markets from collapsing.

I don’t pretend to be a financial analyst, but the Dow was way below 10,000 just five short years ago, and we can expect it is going to continue to fall from it’s current position. We can also expect to see more major banks, mortgage companies, homebuilders and investment firms to collapse. The Federal Reserve Bank is not going to be able to bail the all out, and they should not have bailed out Bear Stearns.

This is not the first time we have had a financial industries correction based on over speculation in land development, and it surely will not be the last – especially if the federal government continues its commitment to bailouts.