Correction

I'm sorry

$700,000,000,000

Media~Government Relief Plan

I was watching the Daily Show and they were discussing the crash of the financial markets.  The beginning of this clip is kind of irrelevant, but halfway through they show a montage of actual news clips.  Though Bush calls the recent events "adjustments", the media calls it an "apocalypse".   With these two trusted resources telling the public two different things, it only creates more turmoil.  People are already confused and now they have no idea what to think.  This is only going to create even more chaos.  Plus, most of the articles I have read are written in such technical terms so that the majority of the population who have no idea what they are talking about.  If there is nothing written in the popular vernacular, the American people cannot differentiate the propaganda from what is actually happening.  Experts keep making vague metaphors about blood and hurricanes rather than actually explaining what is going on.  

On the front page on Yahoo! there is a story about "Black Wednesday".  The article discusses the "panic" and how the economy is going "haywire".  Ok, if one of the most widely seen websites starts calling it Black Wednesday, what do you think people are going to do?  The people are not the only ones freaking out.  The federal government is planning a huge intervention (the biggest since the '30s).  Treasury Secretary Henry Paulson planned the "Balance Sheet Relief", which proposed that the government assimilate the bank's bad assets.  This plan comes with a heavy pricetag, over $700,000,000.  Is this really necessary?  Should taxpayers really bear the burden of the mistakes of businessmen?  Nevertheless, action is necessary.  Banks are really in a bind: the federal funds rate is two percentage points over the normal interest rates.  They are in debt and do not have the ability to lend anymore.  Without action, everyone will be affected.  These large banks are so closely intwined with the American economy.  If they collapse, the American economy will collapse.  If this plan is effective, banks will have the ability to loan again and mortages will become more abundant.  People will be able to buy houses and real estate prices will increase, which is essentially the root of the problem.  Though the initial cost of the plan is titanic, the marginal social cost of not doing anything is even more substantial.

Because I am not an expert and I am just interpreting many of the analyses I have read, I could be completely inaccurate.  Most of the articles are very negative about the current economy and very optimistic about the federal plan.  I have to wonder if all of this media attention is just propaganda to gain public support for the new government plan.

http://finance.yahoo.com/banking-budgeting/article/105807/Shock-Forced-Paulson's-Hand

http://www.nytimes.com/2008/09/21/business/21econ.html?pagewanted=2&hp

Murderball

The one economic concept I have always had a hard time with is the concept of sunk costs.  I understand that once decisions are made and that once things happen you cannot go back in time and change them, but it seems to contradict human nature to completely forget your mistakes.  I know when I mess up, I become preoccupied with my mistake and then I cannot objectively make new decisions because I am so fixated on my past choice. 

In the movie Murderball, a documentary about a paraplegic rugby team, I recognized how the people epitomized this acceptance of the past in order to move forward and succeed.  Though they have the biggest reason to regret and to complain about their history because it had such a huge impact on their daily lives, they seemed to accept what had happened to them and tried to move on.  A few of them rightfully whined about their situation, but they did not let it stop them from making their next move.  The paraplegic players had suffered so much trauma and tragedy, yet they risked even more physical injury to play the game.  I don’t understand how someone could simply let their experiences go and forget about the past, and then decide to put their lives in danger again.  My first reaction to the incredibly physical and violent game was “Why risk even more injury?”  But just like in economic practice, it was in their best interest not to dwell on their regrets and problems and to think about their next choices.

What I gleaned from the film was that whining and complaining does not get you anything: it is impossible to turn back the clock.  You have to, despite human tendency to kick yourself, let go of the past in order to move into the future.  Sunk costs are irrelevant and should be disregarded.  However, emotion makes this statement easier said than done.