I continue to be troubled by the ethics of the EESA because, in the most simple terms, it devalues the entirety of the economy to make the impact of the over exuberance of stock traders/futures traders, less painful. In essence, it lowers the bar akin to the No Child Left Behind policy and makes everyone that much closer to baseline regardless of how hard they tried to excel.
In a paper I wrote, I tried to reflect the impact of the changes to the economy in these terms (There is a lot of complexity in the underlying message, but I’m going to try to water it down so I don’t get confused and thus cause confusion.);
It is a given that you have in your hands, $1000. That $1000 is worth face value of $1000, and we’ll set aside, the concept of time-value-of-money for ease of this case. You want to buy something from your neighbor for $500. While this transaction goes on, the dollar goes down in value by 25%. That makes your original $1000 only worth $750. Since you’ve given $500 to your neighbor, you have a remaining balance of $500. But remember, the true value of the dollar has declined by 25% and thus is truly worth only $250 ($1000 – 25% = $750 – $500 (to your neighbor since it changed hands, it didn’t devalue to you) and you end up with $250 of true value. You have $500 in your hands, but during your transaction, the $1000 declined in value by 25% and you gave $500 to your neighbor.
Your neighbor is very well off compared to you, and has many millions of dollars. The $500 to you was a greater value, but still diminished by the same 25%. In terms of your budget, it hurt more, and will take more to recover it. When the economy grows again, you will have less to grow compared to your wealthy neighbor.
Now, the application of this to the banking bailout industry is profound. More money is chasing bad money, in a declining environment and it takes away from the greater number of tax payers who are on lesser budgets than those who have more [banks] and supply money to those with greater budgets [financiers, bankers, millionaires, billionaires, etc] and who feel the pain of a declining economy in completely different scales. When the economy recovers, a great amount of cash will be in the system, and there will be a great amount chasing few supplies causing inflation, but regardless, those with less have less and things will cost more whereas those with more can afford to pay more.
In another example, Bernie Madoff, reflects the difference between a person with a relatively low income level committing a crime or not being able to pay a debt and a person who swindled $50 Billion [yes, billion] from relatively wealthy investors. Some were much richer, others not so much. He remains in his $7 Million condo in Manhattan where others lose their house, end up on the street, can never afford to buy a house again or end up with horrible credit to the point they can’t get an apartment. He has been effectively bailed out due to his wealth, even though it is all fraudulent wealth.
Bailouts are ethically unsound because it takes from the masses to benefit the few. It is obvious because when you apply simple math to the bailout budget, you see that each person would receive little to nothing in real value. The same stands for trading stocks, but that is another story.