This is no game!

One of my respected classmates, William Berry, wrote a blog titled "Who's controlling this monopoly? Certainly not the banks!", on April 1st, from his Blogspot named “The never Ending Blog” and it struck me as a very interesting point of view. He talks about the infamous $700 billion bailout approved by President Bush in his last months of presidency in 2008, and it compares the banks bailout to the game of Monopoly.

The crisis of 2008, led by the bubble in the housing market, has been a tough one to get through and it won't be easily forgotten, as it is certainly printed in many History books. Because of the banks' greed for profit, the housing market was inflated with subprime mortgages, loans made for financially under qualified people, with lower level of education; the target was the people who couldn't really understand the outrageous terms of their contracts and who saw an opportunity to own their American Dream.

 These terms, which usually included fixed interest for the first 3 or 5 years of mortgage payments and a readjustment to a variable monthly rate thereafter, was a recipe for disaster. And it came crashing down rather quickly. When these mortgage payments became too high to manage because of the variable interest rate, many homes entered the process of foreclosure. Foreclosures gave banks a huge inventory and overhead. Lending came to a halt. The credit and housing markets slowed down, causing the whole economy to slow down and enter a recession.

A recession meant lack of confidence from investors, and Wall Street suffered. The dollar devalued towards the Euro, Gold and Petroleum. Companies had to use more dollars to keep up their output, while cutting its costs. Cutting costs meant lay-offs. Lay-offs meant less consumers to buy products... you get the idea.

Everyone agreed that the credit market needed intervention, and many proposals were brought up. The bailout seemed to be the fastest way to plug the hole at the time. Even though it wasn't perfect, it was a quick band aid. All other plans were more intricate to implement and would take years for market mechanisms to respond.

William, the author of the article in question, brings up a good point, in essence, that it is not fair that the government used taxpayer money to fund the greed of high risk investment companies. However, one cannot compare one the biggest recessions, nearing depression, to a game of Monopoly.

If the greedy companies like banks failed, thousands of people would lose their homes, jobs and investments. Recovery of these assets, for the common people, would be a slow, painful and costly process; through the judicial system or FDIC claims. So, the Monopoly idea of simply letting the loser get out of the game is just irresponsible in real life, as we, or someone we know could be one of the people affected by their exodus. Imagine if my bank failed and I could not withdraw or reclaim my money for weeks to pay my mortgage or my bills, or my car. Without my car, or money to put gas in it, while I waited for my FDIC claim, I can't go to work, so I would probably be fired. What then?

The bailout was a quick and efficient way to keep things going at the time, but it can still fail, too. Because of it, the national debt shot up the roof, which puts our nation in a very sensitive position worldwide. The only thing that can be done now is to cut down our expenditures (macro and micro), reform income tax laws to be able to generate more revenue, and stay put for a few years until the market corrects itself. This seems to be our Government’s priority in the past few weeks, so I guess we'll be playing this game a little longer.