We Do Still Have Capitalism, Right?

Now, I write this column with the humble admission that I probably don't understand what I'm talking about. I write this column with the humble admission that I am not an economist, nor am I studying economics. So if I have misunderstood some concepts or make some false assumptions - please forgive and correct me. I don't mean to mislead anyone, but rather to make a larger point on American principles.

But the late news about the collapse of financial mega-bank Bear Stearns has raised some philosophical questions. If you haven't heard, the Federal Reserve gave a direct loan (unprecedented) to JP Morgan Chase to acquire Bear Stearns for only $2 a share. It was worth $170 a share just a year ago (January 2007). This all comes as the housing market growth has slowed, home values are declining, mortgages are going bad, the dollar is the weakest in its history, and credit is in crisis (God forbid Sally can't finance her shiny new washer and dryer).

So Bear Stearns made some investments that went bad. They made bad choices - unfortunate choices, at least. Now, if I make poor financial decisions, like maxing out a credit card or overdrawing my checking account, I get hammered with fees, late charges, finance charges, and harassing calls from bill collectors. My credit score gets knocked to the point that I can't function in society.

Bear Stearns, and the other big banks, make bad decisions and the Federal Reserve says - "Hold on there Fuzzy Bear - Fed to the rescue." $30 billion dollars to help JP Morgan Chase acquire Bear so it didn't have to declare bankruptcy. Does that seem fair? Now hold that thought.

Let's talk about the whole mortgage thing. So some companies gave loans to people who couldn't afford houses. How does this deal sound - no money down, no closing costs, and an intro APR of 3.0%. "Wow honey - let's move out our double rental and buy that 3,000 sq. foot mansion on the north side." Yeah - it makes a ton of sense, I know.

Now it seems like common sense to me that people make bad decisions and they must pay for them (including me). What's so interesting though is that a recent CNN poll says while some people blame the individuals, a majority blame the banks (they were making money - you know, their job), and almost 20% blame the government!

I don't recall President Bush or Ben Bernanke being in the room with your idiot self and your idiot mortgage broker when you signed your idiot loan. Pretty sure the final decision was in the individuals' hand - that is where the pen goes, right?

And now Hillary Clinton (bless her little heart) has called for a one month freeze on all these mortgages to help people catch up and get back on track. Must be nice, shutting down all the mortgage companies already in trouble from receiving any payments. And somehow I don't think that Billy Bob and Martha in their mansion will be able to catch up when their APR went from 3 to 9.677%. But who knows - I did drop out of calculus.


So with all these things in mind - I'd like to pose my title question. We do still have capitalism, right?

America was built on principles of individual responsibility and ingenuity. We make or break ourselves. We have the power to make decisions, thanks to our veterans, but that means we also have the responsibility to reap the rewards or pay the consequences of those decisions. So why do we have federal agencies regulating and controlling aspects of the economy? I suppose it goes back to the Great Depression, when democracy ruled and these agencies were created. But aren't we better than that, stronger than that, smarter than that? Can't Wall Street investors understand that they put their money into a risky situation, and they may lose money? With risk comes reward, but not always.

It's not up to the government (or shouldn't be) to guard the investors against loss. Investors should know the company they're investing in, and if they pick a bad company (with issues in liquidity like Bear Stearns) then they will get a bad return (namely: negative).

Same with bad mortgages.

Same with home improvement scams.

Same with the unlimited credit card offers that seem to flood my mailbox.


Let's make a commitment today to really looking at what we're doing, specifically with money. Let's understand what we're doing, where we're putting it, what we're purchasing. Let's choose to save for emergencies, get debt free, and invest for the future (thanks Dave Ramsey). Let's choose to be responsible adult Americans who can take care of ourselves - what a concept!


And one larger point - let's all (definitely including me) get educated on this stuff. Let's read up on the Fed and economic policy and how it all works. I think this would help all of us better process all the news!