Demosthenes2010

I need help understanding something.
I am 22 years old. I own two new cars, work in a great career (think health care meets technology), and have a nice house. I am starting a business with two friends and we have plenty of clients lined up so things are looking good there too. I love this country and I honestly believe that for the time being it is the best place for me to build my riches. I thought I was very fiscally conservative but most conservatives I meet disagree with my uninformed economic views.
I'm not pretending to know the right answer but when I take into consideration everything that I DO know, it doesn't feel like our actions really help our country's long term economic outlook.

Here are some of the big things that have happened recently that I don't understand in the words of those who explained them to me.

1.) Bear Stearns had 12 billion in equity supporting 400 billion in assets. Those assets include securities, debt, and trades in place with counter parties. If you let Bear Stearns fall they would have to liquidate those securities and the counter parties would have to write off all debt. The other parties would be below their equity requirements and have to sell into a already weak market. Causing the same effect again.

All the Fed really did was step in when the first domino was falling. JP Morgan is taking a 6 billion dollar charge off plus the 230 million they are paying in stock. So they are paying 6.3 billion for something between 6-12 billion in balance sheet equity and a ton of risk.

This justifies the bailout because had they not done something to stop it, a landslide would have started and companies that were already in tough positions would have been pushed over the edge causing our economy to go into a free fall and a lot of people to lose jobs.

2.) When the Fed drops interest rates they are dropping the interest rate at which the 7 really big banks can borrow from them at. These banks act like a gateway to private organizations borrowing money. If the government did it then they would need to manage who got credit and who didn't etc... This way a few big banks just get the money at x interest rate and then lend it to other banks, individuals, etc... at y. Y doesn't HAVE to be influenced by X for the people lending from the big banks. This lowers the value of the dollar because we are tossing more dollars into "circulation" but it keeps the economy going by providing money to be borrowed.

3.) we bailed out the airlines, car companies, farmers, and mortgage industry because if we didn't these large employers would fail and that would seriously harm our economy

My question/statement is -
don't these things encourage the cycle of bad credit and the whole "if the worst happens, the Fed will pick up the tab" mentality that will encourage future bad lending/business practices?

My understanding is that in a market, the risk of losing is the control. Taking away the real disincentives of losing ones money from bad investments and replacing it with government bailouts and government bureaucracy is never going to be a sustainable answer.

People have chosen to be financially tied to the failing securities. Tough shit. Unions are killing domestic companies because people want to be paid unrealistic amounts of money for manual labor. Let the companies fail and our populace will either gain more useful skills if they want to continue earning at their current rate or they will find new jobs at a similar company that isn't failing in another union that makes them less. This isn't a hit at unions its just that I don't understand why I am essentially paying for their salary along with the rest of the Americans who are working for smart companies. Unions would still exist but they would be forced to take into account the same market forces that pressure everyone else.
Similarly, industries like the airlines cut the pay of their workers by 30% and then raise the bonuses of their executives by double digits. Why do they deserve my tax dollars? Either the executives manage better (this includes giving its workers pay cuts unless they strike and force him to take a smaller bonus) or they lose their jobs just like the individual workers again and shareholders don't trust them enough to let them manage another company in the future because its their money on the line when the company fails.

We have for too long indoctrinated people in the silly belief that there is reward without risk, that we can profit when our choices are good and "the government" will mitigate the losses when our choices are bad. Yes, the transition from coddled to independence may be painful, but the wrong answer to that pain is to continue coddling.

I would rather see them fall (bringing me down with them) and take what they have coming than allow the market to stay in tact so as to weaken the consequences of their actions. the status quo is NOT good enough and people won't demand change until it is too late. Will people lose jobs and homes? yes. Will some rich people lose a lot if not most of their money? probably.

Still, isn't this better than artificially propping up industries so that we as a whole become weaker just to keep us all from having to move that extra inch? Wouldn't companies who do things better rise up and succeed where the ones that failed once stood? If a car company fails, someone somewhere will figure out how to do it better. If an airline goes under, someone somewhere will see how they were inefficient and will fix the problem. Why let weak people, rich or common, profit from our society's laziness and unwillingness to confront that self betterment is painful.

I feel angry about the interest rate drops as well. The government is making my paycheck worth less and less by lowering the interest rate and letting more and more dollars enter the system.

We all know the public won't change unless it immediately affects them. What was the other story on the front page today? Despite poor market conditions exec's bonuses went up 14% this year? and the cost of food going up by double digits? and our currency being devalued at an alarming rate?
I'm not trying to start a flame war. I just honestly want to understand why this is good for me. It just feels like we are bailing out corporations that are inefficient and we are giving handouts to millionaires who took advantage of the common man's ignorance of how their mortgages worked.
This doesn't make the common man right just because they were too lazy to learn about the contract they were signing but why are we allowing the system to stand if it doesn't work?

Every explanation that I have heard pretty much ends in, "well, if you don't, the economy will crash and the world will end". That is rough but really,the world will not end. Companies and individuals who DON'T make as dumb of decisions will rise from the ashes. I just feel like the government is covering the ass of stupid rich people while dragging the only unit of measure that I can make through the mud.

Maybe its just the engineer in me speaking, but in science we would look at this as an opportunity to improve. It seems like the financial world is constantly looking to cover up the issue and save the biggest ants instead of letting the whole colony grow stronger through natural selection.

Again, I don't know what I'm talking about really. I'm not an economist and while I enjoy learning about it, I don't really understand how these things work. I just want someone to make me not be so mad by explaining how I am misinterpreting what I am observing be that due to a lack of information or a lack of perspective.

"Permit me to issue and control the money of the nation and I care not who makes its laws." — Mayer Amsched Rothchild.

"If the American people ever allow the banks to control issuance of their currency, first by inflation and then by deflation, the banks and corporations that grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers occupied." — Thomas Jefferson

"I believe that banking institutions are more dangerous to our liberties than standing armies." — Thomas Jefferson