Not being a financial expert, the following is put into my own layman terms.
The bailout ….. or rescue plan ….. or whatever it’s being called today, is less about keeping large Wall Street financial firms afloat, and more about keeping the financial lines of credit open – and not just at the top end on Wall Street, but all the way down to the individual consumer. It’s not just about protecting the fat-cats on Wall Street at the expense of the normal guy on Main Street, but rather it’s about protecting them both. It’s not just about facing the mortgage problem, but rather the whole financial system on which it’s based.
These companies, for any number of reasons, are simply running out of money. At the top end, these financial institutions lend money to each other, who then in turn, lend it to institutions all the way down the financial line. If the money and/or credit flow is interrupted – or dries up – at the highest levels, the ripple effect will be felt all the way down the line. Companies like ACME Widgets, who use short term credit to buy inventory, might not be able to borrow operating capital – even though their credit rating is perfect. If they can’t buy inventory, they can’t manufacture their goods ….. and they can’t sell their goods ….. and they can’t pay their employees ….. and you know the rest.
I know of a guy who actually finances his small business with a $10,000 line of credit on his Visa card. His credit rating is as close to perfect as you can get. He tried to make a purchase for supplies to complete a project, and he discovered that the credit card issuer reduced his line of credit to $500. They simply didn’t have the money to extend him credit beyond that.
Sure, we could put the blame where it’s deserved and let the upper echelon of the financial world crash and burn. But it will be felt all the way down to the guy who might lose his job because his employer can’t get the credit to keep his business going. Of course, that guy who’s now out of work will rely on government social programs to provide for his basic necessities (a bad thing), he’ll be unable to pay his mortgage (another bad thing), and on it goes (to more bad things).
When a financial crunch is placed on the whole system, people will buy fewer automobiles, and Detroit, as a result, will lay-off more people (as if they’re not hurting enough right now). Housing starts will drop, and the unemployment rate in the construction industry will rise. Small business will close their doors because of poor sales. The effect will be felt everywhere, not just on Wall Street. And can anyone predict what might happen to the value of 401(k) and other retirement accounts?
It’s a domino effect, and as much as I find it distasteful, I simply cannot cut off my nose to spite my face. I’ve heard numbers as high as 90 percent who are against the plan – any plan. Well, I guess that puts me in the 10 percent minority. And it’s really kind of ironic, if you consider my ideology – an idealist who’s well-grounded on a firm principle of less government. (And Delbert, that does not mean [i]no government[/i].) But I’m also a realist, and we don’t have to let it happen. It could have been avoided in 1929, but the wrong measures were taken. I believe we can avoid it today.
I’m also one who is suspicious of those prophets of doom and gloom. That’s the problem with these politicians presenting everything as a [i]crisis[/i] – the healthcare [i]crisis[/i], the climate [i]crisis[/i], the homeless [i]crisis[/i], the world food [i]crisis[/i], the handgun violence [i]crisis[/i] ….. Everything’s a friggin’ crisis. It’s no wonder people can’t differentiate between a real one and a fabricated one. This one, however, I believe. And I don’t believe it because of what any politician might say, or how loud they sound their warning bell. I’ve been listening to people I trust – ones I know who are very well informed and financially savvy. I won’t say who or what, but I believe this is real.
The way I see it, there are three choices:
1. Do nothing and take our chances that none of the above will happen and/or the recovery will be less painful than some people predict. Personally speaking, I’d be fine with this option. It certainly fits my ideology of less government interference and control. Moreover, I’m also certain that I’ll survive, regardless of what happens, and I’ll find a way to meet whatever challenges that might arise.
2. The Fed could simply pump out more cash – hoards of cash. Of course, we all know the tolerance level for inflation is not much more than 3 percent. How about 10 percent? Or 20 percent? Does anyone remember the late 1970s – high inflation and even higher interest rates? Well, I survived it once, and I could certainly survive it again.
3. Take the right measures to avoid it and/or reduce the fallout. I’m not smart enough to know the details of what that might be, but I like this option better than the first two. And the realist in me, in this case, trumps the idealist who keeps beating me on the back of the head. I like the plan as articulated by Larry Kudlow. If done right, perhaps it could be a win-win. And I’m always in favor of seeking the win-win solution.
http://article.nationalreview.com/?q=YWE3ZTg5MDZjOTI2MDA4MjYxMGQ3ZDg1YzI5MTBmOWE=
However, I call on the investigative reporters in our illustrious media to discover who’s and what’s to blame – without political pandering or favoritism – and bring the case to the court of public opinion. Fat chance.
Who’s to blame and/or what’s to blame?
[i]”From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. “If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.” [/i]
Read the whole article:
Gee, it was even predicted! In 1999!
Politics stinks. And big, intrusive, social engineering government sucks. I shake my head in disbelief at people who want more of the same. These things are never taken as a lesson, or so it seems. Why is that?
Just wait until they get their scummy and greedy little hands on your health care. Turn your head and cough – because that’s exactly what they will have you by.
(Sorry about segueing into that little rant at the end.)
