First, understand that we are as frustrated as you are about this situation. There was incompetence, negligence, and outright fraud, and we're angry about the liberties some have taken in abusing our capital markets. However, we need to confront a brutal reality: The condition of the credit markets jeopardizes our economy.
Our position on this is governed by three overriding principles:
1. That letting massive portions of our financial sector fail would have enormous negative effects across our economy.
2. That although we'd prefer a free-market solution, the U.S. government is the only entity with resources sufficient to make a significant impact.
3. That government intervention must protect the interests of the American taxpayer.
As stock-market investors, we may not focus that much on the credit markets, so it is critical to remember how much the credit markets mean to our way of life. Credit accounts for the overwhelming majority of the money supply in our economy.
If the reliability of our credit markets is undermined, there are innumerable consequences. For the economy, the credit crisis means lower investment, lower spending, recession, business failures, and a massively devalued stock market. For the average taxpayer, this means watching 401(k)s plummet and putting on hold plans to retire, buy a house, or go to college, and for many it will mean layoffs, foreclosure, and bankruptcy. This type of crisis is not only unacceptable but also unnecessary.
While we greatly prefer free-market solutions, this is a time for government intervention, because only our Treasury has the resources to help our financial system get back on its feet. If the crisis persists, we could be in for a consumer depression, which would hurt us all far more than it would cost us to prevent it today. We do not say this with any pleasure: The choice is between taxpayers taking on the responsibility for this crisis in an orderly fashion or a non-orderly one. Either way, we're on the hook to clean up the mess.
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