Sunday, December 21, 2008

A Quick Thought

So just a quick thought about the current financial fiasco that is going on right now...

In the early/mid 1990's, the former Soviet Union was in need of raising money and trying to turn from a centralized planned economy to a capitalistic economy. One way the government raised money was by a program called the shares-for-loans program. What this program did - in a nutshell - was it allowed the government to "trade" shares of its nationalized companies - such as oil, mining, power, and manufacturing companies - for loans that would be made by wealthy Russian citizens - the oligarchs. The stipulation to this program was that if the government defaulted, these investors could recoup their "loans" by taking control of these companies.

The Russian economy crashed in 1998 and the government defaulted on the loans.

Hence, these companies that had been owned by the government were now owned by citizens - much like our corporations and partnerships here in the U.S.

What is going on right now with our economy and with all of these bail-out programs seem eerily similar - except the other way around. These loan packages - bailouts if you prefer - are being sold to a very skeptical population by saying that there will be long term fact these bailout programs should be looked at more like an investment in these companies, or loans (as are they are being spun to us by the investment into AIG and the auto companies).

So what happens, theoretically, if all of this money gets spent and 1 year from now, things are no better - or even worse - than they are now? Can the government believe it will be able to pass more "bailout" programs - spending more taxpayer money to prop up failing companies and the financial sector? Not likely. So where would that leave it?

Although just my view, it would be forced to do what the Russian oligarchs did back in 1998 - take control of these companies. In one word: Nationalization. On a large scale.

Is it out of the realm of possibilities? I don't think so. But this is just my quick thought on this. I'll write more when I find time.

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