Monday, September 29, 2008

Thoughts on the Credit Crisis

I am not sure where I stand on the bail out. Some say that while they detest it, it is a necessity to stabilize the markets. Others say that it is too much government intervention and that taxpayers should not foot the bill in a free market economy. I am sure of some things though:
  • President Hinckley warned us about this for years.
  • When we do come out of this, and we eventually will, we will have gained nothing but losses.

During the railroad construction boom of the 1850's the speculative bubble that burst left us with huge losses and cheap railways across the country. Entrepreneurs were able to buy the railroads for cheap and develop a continental trading system. We came out on top.

After the internet bubble popped in the late 1990's, we were left with huge losses and fiber optic broadband cables connecting us to India and China. This infrastructure was bought for cheap and you began to see massive off-shoring to India and China around this time because US companies could get great connections with good workers abroad. Without broadband cables, this would be impossible. In other words, despite the losses of the busts, we had massive and high quality infrastructure that benefited (and still does benefit) us and them every day.

The bubble popping that we are essentially feeling now is from the housing market as we all know. After the bubble burst, the government and Alan Greenspan encouraged us to invest in housing as prices were rising so fast (not to mentioned Congressional members purposely lowering credit standards for mortgages). The bubble popped in September 2007 and we are still feeling the effects today. After we recover from the astronomical losses of this bubble in the months/years/decades from now, what will we be left with? Cheap railroads, fiber-optic cables that will improve the economy or a Condo in Aspen and Boca Raton that are useless?

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