Monday, September 15, 2008

Shhh. Don't tell anyone, I'm blogging from work.
I would not normally do this; I've never done it before. But I just received an email from a colleague, Deborah Todd, who had questions about today's financial news. I'd like to share her questions and my answers.

Her questions:
...can you please explain why the collapse of an insurance company (AIG) will bring such financial turmoil to the American economy as a whole that taxpayers should make sure they don't go under? While you're at it, can you explain why it's a bailout as opposed to welfare? And that's not snark--I honestly don't see the difference.

My response:
I just told Don Hammonds (another coworker) a little while ago that one good thing about living in Homewood is that all of this financial turmoil probably won't make any difference there. There's an odd type of security in being a member of the underclass. When you're already dead broke, all of Wall Street could collapse, and you could just chuckle and say, "Welcome aboard, gentlemen."
Seriously: given that we just reported a couple of weeks ago that Pittsburgh is the fifth-poorest city in the U.S., I think that if the PG were really smart, we would write about how this stuff will affect the poor - folks with no portfolio, no 401k, none of that.
The difference between bailouts and welfare. Bailouts are for corporations, generally ones that are large enough so that the prospect of them going under is considered a threat to the economic system (read, "to other corporations" - it's not as though people are afraid of the poor becoming poorer). If you're going to go broke, do it after you've gotten big enough so that other people's jobs depend on you not going broke. Then, I assure you, miracles will happen.

That may be snark. But if it is, it's because I remember, not only Bear Stearns, but Long-Term Capital Management.

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