TAFL: Who benefits?
How do you evaluate a program like TAFL? Before we get into what it is and who benefits from it, let's try a little exercise.
From 2003 - 2007, 25% - 30% of the growth of the economy came from the financial services sector. Now we're in a recession. In order to get out of it, we need increased economic activity. Problem: financial services activity may not be there to do its part. Add to this the fact that everything seems to be slowing down.
And so the government is trying to create jobs to replace the lost activity in financial services. It's a stop-gap measure. No one believes it's a permanent solution. So should the government just do nothing? Opinions vary.
Some would say let things "play out." Too much (0f any) government interference will lead to things getting worse (Depression?). Others say if the government keeps "hands off" things will get worse and people will suffer unnecessarily. That's the real issue: people's suffering.
So maybe we should ask ourselves, as we review government proposals: will this alleviate people's suffering, or make it worse?
Example: TAFL. It's a program the government set up to make cheap funds available to private investors (read: hedge funds) so they can borrow cheap and buy up some of the bad assets out there. Translation: the government provides cheap money so the hedge funds can leverage their investment in these assets and make significant profits. Significant means 20%+.
There's more to this, more detail needed to understand exactly what's involved. For now, here's a question: Isn't the use of leverage one of the root causes of the current crisis? And going back to our original question: How will the encouragement of leveraged investing by hedge funds alleviate people's suffering?
From 2003 - 2007, 25% - 30% of the growth of the economy came from the financial services sector. Now we're in a recession. In order to get out of it, we need increased economic activity. Problem: financial services activity may not be there to do its part. Add to this the fact that everything seems to be slowing down.
And so the government is trying to create jobs to replace the lost activity in financial services. It's a stop-gap measure. No one believes it's a permanent solution. So should the government just do nothing? Opinions vary.
Some would say let things "play out." Too much (0f any) government interference will lead to things getting worse (Depression?). Others say if the government keeps "hands off" things will get worse and people will suffer unnecessarily. That's the real issue: people's suffering.
So maybe we should ask ourselves, as we review government proposals: will this alleviate people's suffering, or make it worse?
Example: TAFL. It's a program the government set up to make cheap funds available to private investors (read: hedge funds) so they can borrow cheap and buy up some of the bad assets out there. Translation: the government provides cheap money so the hedge funds can leverage their investment in these assets and make significant profits. Significant means 20%+.
There's more to this, more detail needed to understand exactly what's involved. For now, here's a question: Isn't the use of leverage one of the root causes of the current crisis? And going back to our original question: How will the encouragement of leveraged investing by hedge funds alleviate people's suffering?
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