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The Motley Fool: This Should Be Your Position On The Bailout

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February 02, 2009 – Comments (24)

True story: A young lady once went to the doctor complaining of weight gain and fatigue. She was a light eater and always very thin and active. The doctors were confused but they had to do something. They started to treat her symptoms individually, prescribing medications and running test after test. With each passing month, new symptoms emerged. More tests were run. More medications prescribed. Within a year she was on fourteen daily pills. Finally, she met a doctor that wasn't a total quack. He diagnosed her illness properly, treated it, and I am happy to say that she is on the way to recovery. It turns out that the original doctors actually created more problems by treating the symptoms without understanding the cause. Had she continued to leave her life in their hands, who knows what kind of damage they could have caused.

When it comes to the bailout, The Motley Fool has joined the chorus of quack economists that feel compelled to do something, without understanding the true cause of our economic plight. Now before we diagnose the underlying problem with America's economy, let's take a moment to think about TMF's current position as outlined in many articles, including Bruce Jackson's most recent.

Let's analyze TMF's logic (and the logic of the media and government): We can see that something is terribly wrong. We see the symptoms of this illness: contracting GDP, layoffs, failing banks. Something, therefore, must be done. We know the bailout is a bad idea, but doing nothing is not an option.

Allow me to show you the faults of this logic through an analogy. Let's say you were sitting on a mountain of cash. You know that you have to invest it or spend it in some way, as sitting on idle cash for long periods of time is detrimental to yourself and to overall productivity. Yet after a look at the stock market, you see that every company is overvalued. Investing in stocks is just a bad idea. Yet, armed with no alternative that you can think of, you plough ahead, determined to do something. Of course, you wouldn't do this. It's a bad idea, and as Warren Buffet has said, the beauty of investing is that you don't have to take the bat off your shoulders.

Maybe you feel that analogy is off base. After all, holding cash is not a terrible thing like watching the economy plunge. Maybe so, but the principle is the same. Taking the time to understand the problem and making the right decision always trumps doing something for doing's sake.

The Motley Fool writers, almost all of them, agree that the bailout is a bad idea but the best option. I disagree. No bad idea is ever an option! Instead of opposing the bailout, yet supporting it due to a lack of alternatives, The Fool's writing staff could spend their time investigating the cause of the disease, rather than submitting to the evil treatments. 

For those who believe doing nothing is worse than doing evil, your position seems absurd. If I told you that killing poor Johnny was the only option, and doing nothing is not an alternative, would you allow me to decry you as a fool because you didn't have a better idea? Of course not. You'd want to know what Johnny had done, what caused his behavior, etc. You would certainly to take a deep breath, exhale, and think of other solutions.

Such an approach should be The Motley Fool's position on the bailout. It is evil, and we do not support evil just because we can't think of a better solution.  Let's take a deep breath, exhale, and begin the work of investigating the root cause of our problems. Then we can properly treat the symptoms without causing any more damage to our patient.

I began to discuss the root problems in an earlier post. Austrian School economists have spilled a great deal of ink about the root causes of the economic meltdown. You may not like agree with their analysis, but at least they're trying to identify the root cause. Furthermore, you may not like the solutions they offer, but you should never support evil simply because you feel that doing nothing is not an option.

Promoting evil simply because you see no viable alternative is still evil. The Motley Fool staff needs to do some soul searching. They need to take a principled stance against government handouts. They need to take a deep breath, exhale, and start diagnosing the cause and offering viable solutions.

David in Qatar 

24 Comments – Post Your Own

#1) On February 02, 2009 at 4:17 PM, DaretothREdux (36.76) wrote:

Amen!

David, if you have time (and I understand if you don't) could you look back at this post and respond to Devoish about "wealth" creation. I am not sure what argument to use to convince him that wealth can in fact be created. I have done my best thus far, but I am not afriad to ask for help. So, if you get the chance thanks in advance!

Another great post BTW. I plan on getting as many people as I can to sign that petition.

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#2) On February 02, 2009 at 4:32 PM, nesselsdorf1187 (32.74) wrote:

Great post. Thank you David.

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#3) On February 02, 2009 at 4:33 PM, XMFSinchiruna (27.12) wrote:

Hi David,

Just wanted to express my view that one of the great things about TMF is its tolerance of a wide range of opinions on a given topic. Many readers often equate the views of TMF writers as somehow representing an official company view... when actually Fool contributors are encouraged to share their own individual views.

As an example, I have repeatedly expressed my concerns regarding the bailout through an array of articles, although my views are no more an 'official' view than those cited above. What sets TMF apart, in my opinion, is that readers are afforded a wide range of perspectives from which to draw their own well-informed conclusions.

Fool on!

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#4) On February 02, 2009 at 4:42 PM, TMFHousel (90.69) wrote:

I agree with TMFSinchiruna. While David makes legitamate points, I think it's extremely closed-minded to insist "this is how you should think" rather than saying "Here's my point of view."

 

 

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#5) On February 02, 2009 at 4:44 PM, whereaminow (< 20) wrote:

Thank you TMFSinchiruna. After further research it is evident that the writers are fairly split over the various bailouts. 

TMF writers, and all of us, should oppose evil whether we presently see a viable alternative or not.

Two things particularly stand out when I think about the last 4 months:

1. The governmet's complete and total committment to taking action without even considering the consequences or the cause of our problems. Whether it was Hank Paulson's hysteria, or McCain and Obama's jockeying to be the first candidate to rush off to the White House and get his signature on the bill.

2. The mainstream media's absolute uniform opinion that something must be done. This after months of mocking anyone that offered the slightest contrarian opinion that our economy isn't as sound as the government would like you to believe.

David in Qatar 

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#6) On February 02, 2009 at 4:56 PM, XMFSinchiruna (27.12) wrote:

With those 2 points I certainly agree... for the most part the media have failed to scrutinize the bailout question in a thorough way. Isn't it nice, though, that rather than some uniform official opinion TMF offers a range of perspectives within an atmosphere of tolerance and encouraged individuality? I think so. :)

I share your frustration with the broader trends within our society though that have allowed so much to be done in so little time without an adequate analysis of potential consequences.

Look at the tag line at the bottom of this article:

Fool contributor Christopher Barker thinks that a key word for 2009 could be "consequences."

Thanks for being another voice within a community I'm proud to be a part of.

BTW, I've been meaning to ask you: what are your observations of the economic situation in Qatar during a period when oil has tumbled so abruptly? If you've already blogged about this, toss me a link. :)

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#7) On February 02, 2009 at 4:56 PM, whereaminow (< 20) wrote:

TMFHousel,

Next time, I won't paint with such a broad brush. I certainly don't want to have my message mixed up with any improper insinuations.

David in Qatar

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#8) On February 02, 2009 at 5:11 PM, whereaminow (< 20) wrote:

TMF Sinchiruna,

You are right. And again, I realize that implicating all of Fool's writers was foolish. I am angry at myself for letting a foolish mistake take away from what should have been a thoughtful message.

Now, on to the economic situation in Qatar. What is another word for booming? I arrived here in 2007, went home in early 2008, and then came back last Fall. I live in Doha and have observed tremendous growth during that time. This country has certainly benefited from the war, the oil, and a hands-off economic approach. Depending on your politics, you will probably ascribe different weight to each one.

But consider this. The corporate tax rate is 10%. The individual tax rate for all workers (Qatari or not) is 0%.  There is no VAT, social security, or sales tax. Nothing.

Inflation of the Dollar will hit Qatar hard, since its currency is tied. But the boom will continue in the market. The Doha Securities Market is my next stop. I will be investing here before I invest any more in the U.S. The Qatar government recently opened up the exchange to foreign investors and the brokerage fees are minimal, and they even have E-Trading :)

Thanks for the kind words and indeed, Fool on!

David in Qatar

 

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#9) On February 02, 2009 at 5:19 PM, Schmacko (44.40) wrote:

There's nothing wrong with Bruce Jackson's article.  He says the economy sucks and he doesn't envy Obama's job of having to try and fix it.  He then applys this to the market by making the predicition of long recession, mostly flat market and gives you some stocks that he think might be solid long term investment to try and ride out the troubled economy with.  In short he does exactly what a writer at a site about investing is supposed to do. 

The economy tanked and the bailout is a done deal.  If posting that it's evil and signing, what are ultimately, completely meaningless petitions online helps you sleep at night or makes you feel more righteous then go ahead and do it.  In the end it accomplishs nothing and doesn't help your fellow investors though.   

What helps is something more like Bruce Jackson wrote:  The economy sucks, the bailout is a done deal, here's how I think our economy's going to look for the forseeable future, and here's one way you can play that.   

 

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#10) On February 02, 2009 at 5:33 PM, XMFSinchiruna (27.12) wrote:

David,

Thanks so much for sharing your observations from Qatar? Refreshing to hear about a place where growth remains intact!! I have to say I was naively expecting you to report news of half-finished mega-resorts and golf courses. :)

meanwhile, back home in the U.S....

where is the outrage? Bank of America hosted a huge 5-day SuperBowl party

The event – known as the NFL Experience – was 850,000 square feet of sports games and interactive entertainment attractions for football fans and was blanketed in Bank of America logos and marketing calls to sign up for football-themed banking products. 

Yikes.

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#11) On February 02, 2009 at 6:18 PM, StKitt (29.65) wrote:

Agree with Schmacko's remarks... in this forum, it's better to deal with the reality of the situation than to bellyache about how things ought be.

David's argument loses intellectual credibility when he continually refers to the bailout as "evil."  Regardless of one's opinions about the bailout, it is going to happen because doing nothing is political suicide for Obama and the Dems.

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#12) On February 02, 2009 at 6:31 PM, whereaminow (< 20) wrote:

StKitt,

I have to laugh at myself from time to time. I've spent so much time studying politics and economics, and yet I can still screw up my thoughts with poor penmanship!

"Regardless of one's opinions about the bailout, it is going to happen because doing nothing is political suicide for Obama and the Dems."

That is the best argument for limited government I've ever heard. Politics is politics. Government will act amorally and only advance their own interests.

I should have just said that! And that does certainly qualify all bailouts as evil.

David in Qatar

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#13) On February 02, 2009 at 6:37 PM, XMFSinchiruna (27.12) wrote:

lol... touche

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#14) On February 02, 2009 at 6:40 PM, TMFDiogenes (83.24) wrote:

Hey David,

One quick point: You won't be able to change "The Motley Fool's mind" about this issue -- not because what you say doesn't have any merit (though I strongly disagree with you) -- but because The Motley Fool doesn't have one mind. A lot of people aren't always aware of this, but there's no central cerebral command and control cortex-pod thing we're all wired into telling us "The Motley Fool's position on X." We think it's important for writers to speak their own minds, and they frequently disagree with each other. We probably have taken company stands on a small number of issues in the past (such as when a few of us spoke before Congress about Enron, or more recently), but I highly doubt Fools would agree to tow some party line about whether there should be a fiscal stimulus package or what form it should take.

In that same spirit, of course I encourage you to keep writing these posts (which I disagree with) not just because you may persuade some of us, but also because I like to read opposing viewpoints. You may not convince me on most of your points, but the discussion boards and comments boxes have certainly made me more sensative to the drawbacks of the various positions I hold.

Ilan

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#15) On February 02, 2009 at 6:44 PM, eldemonio (97.93) wrote:

My position with reference to the bailout involves me being bent over a chair with a giant tube of KY Jelly in my hand.  Hopefully they'll let me keep the KY Jelly, but either way, it's going to hurt really bad.

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#16) On February 02, 2009 at 6:58 PM, whereaminow (< 20) wrote:

TMFDiogenes,

I will continue to take my lickings on this point, and I will continue to apologize. I shouldn't have targeted TMF as a whole. Silly of me. I certainly don't want TMF to advance only opinions I agree with.

I will continue, however, to fight the intellectual battle against the ever growing involvement of the government in our economic and personal lives with opportunity.

"Everyone carries a part of society on his shoulders," wrote Ludwig von Mises, "no one is relieved of his share of responsibility by others. And no one can find a safe way for himself if society is sweeping towards destruction. Therefore everyone, in his own interest, must thrust himself vigorously into the intellectual battle."

David in Qatar

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#17) On February 02, 2009 at 7:07 PM, StKitt (29.65) wrote:

"I believe that all government is evil, and that trying to improve it is largely a waste of time." ~ H. L. Mencken

My point: decrying "government" or its action or its inaction as evil or wrong is indeed a waste of time and opportunity. When one is confronted with the prospect of crossing a barren desert or a dense jungle, one's time is best spent on the safest, most efficient way of negotiating the hazard (rather than complaining about the mere existence of the "evil" hazard).

Preaching (often to the choir) about the necessity of limited government, to me, seems quixotic and better suited to a political blog than here on CAPS.

But that's just me...

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#18) On February 02, 2009 at 7:45 PM, DemonDoug (32.31) wrote:

Not to speak for them directly, but I can almost assure you that TMFLomax and TMFBent are also vehemently against the bailout.

I will say however that because Tom Gardner is a proponent of these bailouts, it does mean that the company and the site is giong to naturally slant that way, no matter how many individual writers discuss their opposing viewpoints.

To quote (from 9/25/08):

"Treasury Secretary Henry Paulson has put together a plan that is actively under debate and allows the Treasury to invest in assets that are crushing bank balance sheets. We view this plan as being an important step in allowing the global financial system to recapitalize itself."

You can have 500 green party executives working under Rupert Murdoch, but that doesn't make NewsCorp a liberal corporation.

I have personally called out the Gardner brothers on certain issues, and this is one of them that really irks me, especially since there is a lot of traffic coming to this site.  The multiple articles on Moody's espousing it's virtues are particularly appalling to me.

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#19) On February 02, 2009 at 10:54 PM, kerg01 (< 20) wrote:

Its truly interesting to me these guys keep trying to use the Great Depression as their "lesson learned" laboratory.  Im not sure why since the Great Depression was not really ended until the entire society shifted to a wartime economy.  Lets consider the lessons of another US depression which started in 1920

Some facts

1) Real Estate prices dropped by 50%

2) GDP was 70B in 1919, 71B in 1920, 68B in 1921, and 73B in 1922.  IE a sharp reduction in GDP followed by a robust recovery.

3) Bank failures were widespread and actually continued through the 1920s... These banks were mostly small banks until Credit Anstalt in the Great Depression touched off a systematic bank run.  Banking, as is it today, was inherently unstable due to the fractional reserve system.

4) Unemployment never went higher than about 9-10%...before recovery to <4 percent by 1924

5) Deflation was very much present, with a massive drop in housing, agriculture, and other commodity prices which had been inflated by the new central bank's (fed) policy of monetary inflation.  During this depression, prices were allowed to adjust without intervention and quickly and violently adjusted downward.  Alot of weaker businesses went bankrupt.

6) Stock prices dropped 40% as manufacturing fell a comensurate amount. 

Bottom line this was a bad depression, every bit as bad as today... but there is one major difference.......In 18 Mos it was over.  We have to ask ourselves why.  Why was 1920 so different than 1929-45. 

I will argue that the primary difference was Federal Govt policy.  In 1920 the policy was roughly Laizze Faire as it had been in all peacetime periods since the revolution.  The country had depressions and recessions all through our history, but they were always brutal and swift as the economy re-aligned. The contractions were almost always caused by some form of fractional reserve banking failure. 

Starting in 1929 govt has intervened, heavily at time. The more heavy handed the intervention (such as during the Great Depression) the LONGER the depression lasted.  This was also true through the 1970s as Govt continuously tried to fix each malady in the economy.  Fixes that almost bankrupted the Republic in the end. 

Im no fan of Reagan since he was just about the biggest Govt spender we have ever had, but his words were right when he said "Govt isnt the solution to the problem, Govt is the Problem"

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#20) On February 03, 2009 at 12:39 AM, thomgonz (< 20) wrote:

Stkitt

I believe this is the perfect place for economic discussion, with our without government as the topic. Where else can you reach so many minds looking at monetary policy? I believe David is trying to offer a better way of thinking about how we procede instead of hey it sucks, theres nothing you can do so just go with it. Or for your analogy, instead of your options being, We are going to traverse this desert by pouring more sand on it or we can cross this jungle by riding a man eating tiger, David is pointing to the river with the boat docked on it that you can easily and efficiently get you to your goal.

 I think we need as many people as possible pointing out to the government how it is failing and the horrible options that have already been proven to not work instead of taking the river. Not just saying, well it sucks but here's how to weather you pile of sand the best you can. We need it every time the government tries to interfer in your life, be it the new gun law that is on the table now that will outlaw almost any rifle with a detachable clip and a pistol grip, which you can make any 30-30 hunting rifle look like in a few minutes,  to horrible economic policy decisions.

 Why should we let people who can't even manage their own lives manage ours? Dachel can't even pay his taxes, any religious nut senator telling gays they aren't citizens caught with a hooker or found out to be gay, Any one of them who would outlaw Atheism because they are all "evil despicable" people, who get caught being bribed or breaking the law.

Gonzo

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#21) On February 03, 2009 at 4:01 PM, Schmacko (44.40) wrote:

StKitt said what I was trying to say more better than I did.

" I believe David is trying to offer a better way of thinking about how we procede instead of hey it sucks, theres nothing you can do so just go with it. Or for your analogy, instead of your options being, We are going to traverse this desert by pouring more sand on it or we can cross this jungle by riding a man eating tiger, David is pointing to the river with the boat docked on it that you can easily and efficiently get you to your goal."

The point is it doesn't matter.  Preaching to the choir about how awful the bailout is does absolutely nothing.  The bailout will be passed, most likely early next week.  It's only a matter of what the final form looks like.  No ammount of discussion about how god awful it is and trying to brainstorm up better solutions on these boards will change that fact of life.  You are better spent trying to figure out how it will effect you personally to prepare for it and on an investing forum trying to figure out if there's a way to make money off of it somehow.   

 

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#22) On February 03, 2009 at 4:09 PM, SharpSEO (69.07) wrote:

Good post. I like this saying:

"Don't just do something, stand there".

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#23) On February 03, 2009 at 6:15 PM, StKitt (29.65) wrote:

Thanks, Schmack! You said it just as well.

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#24) On February 11, 2009 at 1:57 PM, nzsvz9 (< 20) wrote:

There's something I don't see being addressed with this whole banking mess.

I hear a lot of fear about inflation out there beyond the current barrage of bad news about the collpasing econcomy. If the contraction underway has removed trillions of dollars via losses and write-downs (exit stage right) and the last and new administrations and Fed are injecting trillions (enter stage left) then where is the inflationary pressure?

In this melee, I'm trying to decide what to do with my mortgage. Every dollar I put against principle I earn today, and redeem only much later when I sell the property (assuming I don't leverage it in the meantime). If inflation is coming, then my hard earned dollar today when redemmed will be worth much, much less. But, if instead I switch to an interest only loan, and continue to make payments, I can take the difference and put it toward CURRENT purchases at full dollar face value.

Consider. I buy a Wii today it's $249 dollars. I use a dollar earned today to get the Wii, inflation has no effect in the very short term. If, however, I put off the purchase, and I put the $249 dollars in to pay off principle on my house, in 20 years when I sell my house that $249 will be worth A LOT less due to inflation, and I would have no Wii.

Yeah, you say, but your house would be worth a lot more. True. But the increase in price of the home will be driven by the market AND inflation, regardless of how much prinicple I pay off on the mortgage. The mortgage is at a fixed rate, so inflation has no effect. The increase in home value is affected by inflation, but in my favor. Therefore, isn't inflation on a large fixed-percentage debt, effectively marginalizing it?

Ok, you say, but don't you want to pay off your mortgage and live better later without the mortgage payment each month? Sure, if I could pay it off faster, which I can't - read wife and 3 kids. So, a monthly interest-only mortgage payment would be like a rent payment, but deductible!

David, what do you think?

Known by many as nzsvz9

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