I need someone to explain to me why spending hundreds of billions of dollars so that failing banks can prop up failing companies is a good thing for the economy. Wouldn’t we be better off in the long run if we allowed credit to tighten and forced business back onto a solid footing of capital instead of credit?
Where the Boston Globe piece above looks at the effect of the crisis on businesses, I’ve also seen some analysis of the effect the credit crunch is starting to have on consumers. Time magazine broke it down in a number of ways:
There are cracks on Main Street, but whether or not you see them largely depends on where you stand. Just ask anyone who wants to buy a house with a subprime mortgage – they’re not all evil, but these days they are exceedingly rare – or with a jumbo loan, which now carries an average rate 1.2 percentage points above a regular mortgage.
This isn’t indicative of a crisis to me. Part of the reason we are in this mess (and I think it’s a smaller part of the reason than some would have you believe) is that lenders were giving loans that were too big to people who didn’t have the means or the credit history to pay them. I don’t see that a tightening of the subprime market as a problem, it’s a correction.
So a jumbo mortgage is running somewhere around 7.5%. If a home buyer wants to purchase a house valued at $540,000 (assuming 20% down), they are going to have pay a higher rate. But historically, those buyers are still paying low interest rates. Assuming that the writer is correct that a jumbo usually runs .25% higher than a conventional loan, the average jumbo rate would have been above 7.5% every year from 1972 (when Freddie Mac began tracking conventional mortgage rates) until 2000. From April 1973 to March 1993, the average conventional mortgage rate was at or above 7.5% for 240 consecutive months.
The problem isn’t that credit isn’t available; it’s that people with bad credit can’t get it and that people with lots of money can’t get it cheaply. Just because the mortgage market has been loose on one end and cheap on the other doesn’t mean that a change in the market is a crisis. It’s just a change in the way we’ve been doing business since the end of the millennium. If you had told someone in 1998 or 1988 or 1978 (especially ’88 or ’78) that we would be in a crisis because people who couldn’t afford loans couldn’t get them and that jumbo loan rates were creeping above 7.5%, they’d have passed out from laughing at your definition of “crisis.”
The Time article continues:
Now, about those credit card offers. You may not feel it, but there are fewer of them going out – 1.1 million during the second quarter, down 17% from the same time last year, according to Synovate, a research firm that tracks direct mail. Who’s being ignored? Well, subprime borrowers (no surprise there), but also anyone who doesn’t make a lot of money: 52% of households with an annual income of less than $50,000 received at least one offer in the second quarter, compared with 66% of such households during the same period last year.
Again, this seems like the definition of better business. So people who have bad credit or have low incomes are less likely to get credit cards? This is not a crisis. Besides, over half of those sub-$50,000 earners are still being offered credit. It doesn’t appear that the credit card industry is tightening its belt too much. Perhaps the third quarter numbers will show sharper declines. Even so, offering less credit to people who can’t afford it isn’t a bad thing.
Finally, a note on car loans, again from Time:
…you’re probably not going to get [an auto loan] unless your FICO score is north of 700, whereas six months or a year ago, a score as low as 620 would have gotten you behind the wheel. “Some of this just represents moving back to standards that were in place five or six years ago,” says Paul Taylor, chief economist at the National Automobile Dealers Association. “But if you’re a customer, not getting credit you could’ve gotten a year before looks like a credit crunch to you.”
And that’s the point. The credit markets are moving back to where they were, when there was at least a shred of responsibility. The credit crunch isn’t a “crisis,” it’s a “correction.” It only appears to be a crisis because America has become addicted to easy credit at all levels.
Somehow we’ve come to the place where our financial system is entirely dependent on borrowing money we don’t have to buy things we can’t pay for from businesses who have borrowed money to stock their shelves and pay their workers from banks that are failing because they have lent too much money to people who can’t pay them back.
And now we want the government to borrow $700 billion to lend to those banks to prop up this system for who knows how long until it fails again.
Do you see why I don’t get it?
that I’ve found are by David Leonhardt of the NY Times. Start with this article from today’s paper, and then go back and read some of his other stuff. It’s very well done, IMHO.
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p>2. Confidence. Remember that a well-capitalized bank like Chase still has only about $0.08 in reserves for every $1.00 in obligations. If everyone wants their money back at the same time, the system will literally collapse. A crisis like this scares people (including bankers!) and damages the essential ineffable psychological trait we call trust that is required for our system to function. That is why I personally think even a bad bill is better than no bill (although I fault the Democratic leadership for not even proposing a good bill!).
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p>Finally, remember that the “crisis” part of this is not what has already happened, as your post seems to suggest, but what will happen, as Leonhardt’s article explains.
I’m no expert in this stuff and very willing to admit it. I’ve been torn between the gut feeling that we need to do something and the worry about taking action that won’t fix the problem or possibly make things worse. Leonhardt’s article finally gave me a reasonable basic understanding about how this affects the credit market. Maybe the new line should be “It’s the credit market, stupid”.
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p>He starts with a cautionary tale:
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p>
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p>It’s not a long article and does a great job of explaining how the current situation is different from 1929 yet it could end with the same result. Leonhardt is doing the job Paulson and the others should be doing.
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p>If you don’t have time to read the whole thing, at least read this:
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p>
about banks hoarding money is exactly what my brother (who works for Wells Fargo) was telling me is happening right now. In point of fact, other banks are parking their funds w/ Wells Fargo @ 0.0% interest, only to have a safe place for funds as the treasury market is completely overloaded.
I’m trying to get a mortgage right now for a new house; so I’m watching this stuff from the front row. Glad I have a good credit score. Though I’m sorry that a) I wasn’t in position to lock in a mortgage rate when they dropped after the Fannie/Freddie bailout and b) I’m trying to cash out some assets for the down payment; not great timing there. I’m hoping we see another rally (post-bailout?) so I can at least not sell at the nadir. Assuming there is a nadir…
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p>Borrowing is necessary when cash-flow is tighter than expenses.
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p>As an example, most retail revenues come in during the last quarter of the year. On paper, retail firms are losing money for 3 quarters and making it up in the fourth.
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p>If those companies can’t borrow money, they will have to close down for 3/4 of the year.
… was occurring because of the fear that the other institution might be holding onto some toxic waste and therefore their ability to repay is in question.
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p>I can understand how that would result in a credit crunch on short-term borrowing to banks, but why should that make a difference in short-term borrowing to Joe Blow Widget Makers Inc.? After all, Joe Blow’s toxic waste holdings are likely to be 0.
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p>If this is what is really going on, it seems to me that the biggest loser would be the financial services sector, but wasn’t it unwise moves on the part of that sector that was the problem? Isn’t a contraction in the sector well deserved?
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p>Maybe this is a good time to start talking about a fundamental change in the character of our economy back to a producing economy rather than a services economy.
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p>Banks lending to banks are the heart of the system. The heart can get a murmur and the whole system soon faints. It’s also worth noting that ‘reluctance to lend’ isn’t equivalent to outright denial of credit. No, the first step is higher interest rates, which, for a margin sensitive business like retail or contractors can be deadly.
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p>Consider:
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p>The building contractor gets a loan from the local bank.
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p>The local bank gives out loans based on what it thinks it can borrow from bigger banks. (It has money on hand, to be sure, but needs to keep it’s balances should depositors demand withdrawal so it, too, will borrow)
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p>The bigger banks lend to the local banks based on what they think they can borrow from even bigger banks.
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p>The biggest banks are so leveraged that a small ripple becomes a tsunami without much warning. Back in 2004 (or maybe 2005, I’m not sure) some of the biggest banks were granted ‘exceptions’ to their abilities to leverage, from the standard 12:1 to 30 or 40 to 1… The names of these banks: Merril Lynch, Goldman Sachs, Lehman Brothers, Bear Stearns, Morgan Stanley. It’s worth noting that none of these banks now exist in the same way.
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p>Just the fact that interest rate go up (or might go up) might be cause for some banks down the food chain to deny loans… or give out loans at higher interest rates then other banks want to, or are able to, pay. At some point either the the contractor is out of luck or the interest rates on his month-to-month loans eats up his revenues and so, why bother?
Another example of a company who needs credit to meet payroll; imagine you have a client that places an order for 100,000 widgets. Payment terms are almost always upon delivery. How will that company produce the widgets that it can later sell without credit? Will its employees work for free for a few months, waiting for the big payoff?
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p>You seem to be hinting at a return to an almost all-cash economy. While that would certainly have the effect of preventing people from running up their debts without an ability to pay, it will affect many others, including you and I.
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p>Houses will plummet in value because the only way to buy them will be to have enough discipline to save the entire amount up-front. No more mortgages. I doubt many people will be saving a half-million dollars to buy a house, so we will become a nation of tenants — the wealthy will buy the houses and rent them to us. For those who do save up for a house, it will likely take them at least ten years to do so, perhaps even 15.
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p>Since it is apparently easier to walk away from a house than from credit card debt, this is the rational path that people will take. I don’t savor the idea of living next to a boarded-up house owned by hundreds of thousands of investors across the globe — do you?
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p>I don’t disagree that the pendulum has shifted too far. I just don’t think the answer is to shift it abruptly back. That will shock the system. Think just in terms of housing — if the new game is that you will need to wait 5 years to save enough to buy a house, then the housing market will tank for a long time because it will take 5 years for most people to save this money.
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p>Now I’m not convinced that this “credit crunch” isn’t altogether manufactured. I think there are a lot of questions that should be answered. I also think that it is a ridiculous idea to let companies “too big to fail” to gobble each other up to try and prevent failure. I think that smaller is better. I also think that investors should lose as much money as possible without threatening the system, and that homeowners should be protected as much as possible without threatening the system. I suspect that is the opposite of what Republicans want.
contractors paid at the completion of a construction project often borrow to meeting current payroll. It’s an established practice.
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p>The crisis for small contractors is when the final payment is delayed. That cash flow crunch can bankrupt a smaller business.
… a reluctance to lend to Construction Contractors if their ‘toxic waste’ holdings are zero? (see comment above)
See comment above. Banks rely on trust. If they’re getting hit with massive withdrawals, they have an obligation to meet those, so better to keep the cash in case a depositor asks for it, than lend it to a construction company that won’t pay it back for a few months. Imagine if someone asks for their money back, and the bank doesn’t have any. They say No. That person freaks out and calls the press. Instantly, a panic and everyone wants their money from that bank. Many banks won’t even lend for a single day right now: overnight interest rates are sky high.
I’d think that with the stock market a roller coaster, banks would actually see more deposits than usual. I know my family’s monthly investment has been routed to the money market account the past few months; I don’t know enough to invest it wisely in the stock market at this point, so I’ll sit it out on the sidelines for a while.
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p>What evidence is there that there will be a reduction in total money deposited in banks?
A few months back I was explaining to my young niece what happens to the money she puts in the bank. “They lend that money to other people. Those people pay it back with interest so that the bank can pay you interest and make some money for themselves.”
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p>Her reaction: “They gave my money to someone else??”
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p>I congratulated her for illustrating how a bank run can happen. I then told her how it was almost certain that if she goes to the bank at any time and asks for her money, they will have it. You have to trust the bank.
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p>And that’s what this all comes down to: trust. So if I’m hearing that my bank is going to have a hard time borrowing from other banks should they need to hand out a lot of money to their customers, I’m going to get worried. If they are hoarding cash instead of lending it out, that will put my mind at ease, at least somewhat.
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p>At least that’s how I wrap my fiscal amateur brain around it.
“The money isn’t HERE..it’s in Martini’s houe, and Frank’s cab, and…”
A week and a half ago that started the panic, just before the weekend that saw the end of Merrill, Lehman, and AIG.
essentially failed because of a run. They were in trouble anyway, but the run pushed them over the edge before they could be sold or merged into another institution.
but I’ve had several clients over the last week asking about FDIC limits. In point of fact, went over with the president of our company these limits and we made the decision to diversify today. We went over today and pulled about half of our cash out of our bank (and opened another account at another) for the company business account. Shades of the late 80s for sure, but who knows?
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p>Also starting to see accelerated draws now from some clients rather than having cash accumulate to the end in the business account.
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p>Definitely potential for runs in this environment, bailout or no bailout. These things happen when people just assume their money is safe in a bank regardless of size; you will see a lot of money shifting between banks as companies/individuals realize that it isn’t a hypothetical anymore about the FDIC limits. Increase to $250k may help some, although the last go around in ’80 was a contributing factor to the S&L crisis later on. Not necessarily sure that increasing the limit is such a good thing; diversification among several banks if you’re running up against the existing limits may be better in the long run for our economy.
Unless they changed the regulation since the S&L collapse a few years ago, the limit applies to all funds in all banks. So $100,000 (or $250,000) is a limit that is not changed by using various banks if all those banks go belly-up. So if you have $500,000 over numerous banks you lose anything over the limit.
The limit is per person per bank, with some weird qualifiers. So a married couple with two individual accounts and a joint account can have up to $400k per bank insured, as long as it is distributed properly ($200k joint, $100k each individual). But one person with $100k in checking and $100k in savings only has $100k insured. IRAs count separately too, which increases the amount you can have in one bank, but I’m not sure about that.
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p>But you shouldn’t just believe me. Check the FDIC website. They have a FAQ and estimator that will tell you how much of your money is insured.
In early 2000s Greenspan and Bush lowered the credit rate. As a result, mortgage rate went down. This had two obvious effects:
– house prices went up (people don’t shop for a house based on price, they shop based on monthly payment. if the rate is lower, the payment is lower, more people can afford the same-priced house. more demand causes house prices to go up)
– lots of people taking equity out of their homes.
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p>More and more money printed causing prices of almost everything to go up. However, incomes didn’t go up as much. Those who could supplemented their earned income by taking equity out; as a result, private debt compared to earned income more than doubled. It’s not just mortgages, it’s credit card debt, car loans, student loans, etc.
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p>What you call “better business” would cause more people to live within their means, reduce their debt, save more or start saving in the first place. This means there would be less consumption, so less production and less jobs. Great Depression, anyone? It’s much easier to keep printing money and prop the economy up by inflation. So what if your life savings will not be worth the paper they are printed on? But jobs are safe, so politicians get to keep their elected posts.
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p>I lived in former USSR through the first half of the 90s. The government just kept printing more and more money, the dollar rate of exchange went from single digits to hundreds, then thousands and tens of thousands. Once I had to use a public bathroom and noticed it had no TP, so I used the smaller notes to wipe and literally threw money down the toilet. I wish not to have this experience again, but am afraid the Republican policy of lowering taxes, increasing expenses and printing more money is going to get us there.
I think the majority of people would rather not have their living standards temporarily raised by inflation, they would rather have stable money and be rewarded honestly for their work.
The Federal Reserve yes mishandled the money starting in 2004. The Fed saw rising prices in 2005 as signals of an overheated economy (which is leftover discredited Keynesiansism). So in 2005-2006 the Fed raised rates eight times and put people out of work. Those people then lost their homes to foreclosure. Their lenders are now closing down.
The point of all of this is that neither the borrowers, nor the lenders really did anything wrong. How on earth could they know what the Fed was going to do?
I have been against the bailout but the bankers really have a decent case that they acted responsibly according to what they knew at the time. Salesmen will always be greedy, buyers will always get themselves deeper in debt than they planned. You can’t legislate that away, it’s as old as time.
I’d love to blame the evil, despicable, corrupt Republicans for all my troubles, but I should clean my own house first.
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p>The vast majority of loans are paid back and, with interest, profits are made.
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p>Your uneasiness (one shared by many) is the seeming precariousness of the system. In a normal situation, it’s not that precarious. In a normal situation. Because of a series of bad decisions by bad agents (predatory mortgage lending, lax regulation, over-leverage) we’ve moved away from the normal. Because we are out of the normal, lenders can’t be certain they are making good decisions and so charge more for the decisions they do make, or make no decisions at all…
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p>Basically, the ‘gambles’ at the heart of our system are
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p>– that debt isn’t concurrent nor equal: there will never be a time when all debts are all due all at once. Therefore, we can leverage our debts. And if we diversify with various debts over various periods of time, there will always be money coming in…
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p>– the ratio of bad debt (loans outstanding that will never be repaid) to good debt (loans that will be repaid) is always small. The good outnumbers the bad.
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p>But you see the paradox here? As the amount of leverage increases, the bad debt assumes a potency it otherwise would not have. And if you let the ratio of bad/good debt get out of whack then you’re just… well… leveraging the leverage… What’s the answer? Regulation. Don’t let leverage get out of hand, and be certain to keep bad debt under control. Both of those things quite pointedly did not happen: The SEC let investment banks (like Lehman and Goldman Sachs, etc) leverage themselves insanely. Like to the tune of 30:1. (former SEC rules required no more than 12:1 leverage) Fannie and Freddie likewise were leveraged out of their minds: at least 60:1 (some think more like 200:1) and predatory lending was darn near smiled upon by the Bush administration injecting (relatively) massive amounts of bad debt into the system.
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p>So the fix, for the whole shebang, is not to scrap it. It’s regulation. It’s stronger and tighter policy and it’s better enforcement.
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p>
At least until someone persuasively pokes holes in it.
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p>Isn’t it interesting that over-leverage appears to be, if not the core issue, the accessory that causes all these crashes? Long Term Capital Mgmt is the textbook example (if memory serves, those that bailed out LTCM eventually made a profit; it wasn’t that LTCM had a long-term problem, thanks to over-leverage, they had a really bad short-term problem), but there are many others.
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p>Maybe regulating leverage (reasonably- if you need to get past 12:1 to make money, maybe what you’re doing isn’t so hot) would be a good idea?
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p>
was quant jocks (and supposedly brilliant Princeton economics professors) accounting for ALMOST every variable. Think that was also the situation here with the credit default swaps. Guess there won’t be quite as much of a market now on Wall Street for the MIT astrophysicists and actuaries; will have to go back to NASA and insurance companies for future employment.
He’s in his early ’40’s and has been in retired for over five years.
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p>He teaches high school math when he’s not lounging at his house on Martha’s Vineyard. His winter home isn’t too shabby either.
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p>Some quants are still doing OK…
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p>
his fortunate timing decision?
He just got bored (and perhaps sick of his partners).
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p>Most of their strategies are market neutral.
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p>There was a hiccup in August 2007 that caused a lot of concern; but stuff bounced back after a couple weeks.
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p>The core problem with spectacular crashes is not the use of quant strategies, it’s the incredible leverage that many of these strategies need to be worthwhile that’s the real problem.
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p>
Its business borrowing that is most in danger, and most dangerous if it stops.
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p>Think of a business that sells widgets. It purchases raw materials, uses its equipment and labor to do something to those raw materials, and produces widgets, which are inventory. It then sells the widgets. In theory, it uses the money it makes from selling the inventory to buy more raw materials, and around we go again. In practice, the inventory is not sold for cash, but is sold on some short term credit. That is because the business would like to sell as many widgets as it can, and restricting all sales to cash in advance tends to minimize, rather than maximize, sales. Instead, they sell on short term credit, meaning that the inventory is converted into an account receivable. So the money to buy the next round of raw materials doesn’t come until 30 days later, when the customer pays. What does the business do? Do they lay everyone off and wait until they can buy the next round? The business has a liquidity problem. It has plenty of assets, but it can’t use those assets to buy raw materials; it needs cash.
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p>Most businesses deal with this problem with a revolving line of credit. They get a loan, and the loan is secured by the inventory and accounts receivable. They draw on the line to purchase raw materials, and then the line is paid down as the accounts are paid. In addition, this credit can cushion against unexpected shocks, such as the need to repair the equipment, etc.
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p>But, says you, shouldn’t the business just keep a lot of cash in the checking account to cover all of this? Isn’t that better business? No, it is not. And that is because keeping a lot of cash in the checking account has costs. That money could be doing something more productive than providing liquidity and earning 2% interest at the bank. It could purchase a new piece of equipment or computer system that increases productivity. It could fund a new plant in Peoria. If it costs the business $10 in interest per month to maintain the line of credit, but the business could make $100 more per month by investing the money to improve productivity, then keeping all of that cash has a cost far in excess of the interest paid to the lender. The business makes less money. There are no new employees in Peoria.
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p>Where does the money that the business borrows on its credit line come from? Ultimately, much of it comes from credit markets on Wall Street. These are the very markets that, today, are in danger of collapsing, and about which everyone is so worried.
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p>If the business’ credit line is up for renewal, and cannot be renewed, then the business must shrink in order to have enough cash to cover its liquidity needs from month to month. Employees must be laid off. Peoria is closed and shuttered. If the company cannot shrink enough to cover its cash flow and still continue to operate, it will close, and there will be no more business.
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p>So, if this happens at macroeconomic scale, many, even most business will shrink. Those that cannot shrink enough to cover their own cash flow needs will cease to be. So, at scale, that would be a significant contraction of the economy, accompanied by significant new unemployment. As businesses shrink, they sell assets. As many business sell assets at once, the value of the assets decreases, which further reduces the ability borrow or to generate enough cash into the checking account. The potential exists for a death spiral.
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p>Please not that this doesn’t happen overnight. The stock market today, or today’s unemployment figures won’t show it. Every business with a line of credit won’t face these difficult choices until they cease to have access to that credit. So, as the credit agreements expire over time, more businesses are forced to close, which means others are put in jeopardy as they lose customers and suppliers, and things get worse, and worse, and worse.
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p>The threat right now is that the capital that has been used to make those loans is no longer being used in this way, because investors are spooked by the damage created by the mortgage mess. It isn’t that the money isn’t there, and it isn’t that business lending is suddenly riskier. The problem is simply that the investors are afraid. If enough return to the market, then everything is fine. Maybe not boomtime, but not a catastrophe. If only a few get back in, but not enough, the catastrophe happens anyway, and the few unlucky enough to venture back into the market lose everything. Who wants to be first?
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p>That is why you have been hearing a lot about “restoring confidence.” You need to give the investors, generally, confidence that they aren’t going to lose everything by venturing back into the market.
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p>Unfortunately, that requires using taxpayer money to blunt the downside of bad decisions those very same investors made in the secondary mortgage market. And that also means that the “punish those Wall Street so-and-sos” might just be an example of cutting off one’s nose to spite one’s face.
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p>Finally, this also means that the “help the homeowners” things tossed into the package by Democrats don’t help as much as you might think, because they don’t do much to get the credit markets moving again. And the happy guy with the restructured mortgage won’t be that happy when his company fails, and he loses his job and the house anyway. Worse, if the delay of foreclosures means that the correction of real estate values (the overpricing of which are the cause of the problem) happens more slowly, then it will take that much longer for the credit markets to begin to function again.
The above also demonstrates why the initial plan– for the government to buy worthless assets held by those investors– doesn’t much solve anything, because it doesn’t necessarily get capital back into the market.
The discussion about over-leveraging was directly on point. Apparently, unless the ratio leveraged is controlled by statute and monitored, the Greedy Guts just keep expanding like hot air balloons and sail away from accountability.
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p>There is sensible credit based on trust – and over-leveraged credit based on the belief that the “next guy” will hold the bag while Greedy Guts just waltzes away.
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p>So no deal is really saleable – or sustainable – without a solid regulatory framework.
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p>Show me the regulatory framework, and then talk about where taxpayer loans to private business are appropriate.
A decent regulatory structure doesn’t happen quickly, yet Congress must act quickly lest 2009, 2010, and 2011 become some very bad years.
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p>Good new programs don’t get passed in a panic. See, Patriot Act.
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p>There seems to be an underlying current among the liberal commentati –and I don’t necessarily mean Amber Paw, I’m just noting it here– that the 1930s were feast time for Democrats and for the implementation of liberal programs, and so why not have a reprise? An example of a situation in which the loss of a great political opportunity by a political party might be a good thing for the country.
Our present monetary system requires debt. Money is created by banks in the extension of debt. While wealth cancels debt, there must be more debt to prime the pump. In the 1929 crash it was stocks that were purchased at easy interest rates. When the stock market crashed the stocks only fell back to their real value. Today, instead of the whole stock market, the problem is real estate and the speculation in paper that rely on the prices of real estate through mortgages. Many mortgages cannot be paid back due to the present market conditions. Some people were given loans that could not pay back unless the market kept going higher and they could sell at a profit. The banks can foreclose, but cannot sell the houses at anywhere near the money lent. Money dries up. The problem is not so much the falling stock market as it is the ability to get credit. Without access to credit, business slows. Capital is a tool for even day to day operations. Companies couldn’t hire people without credit for wages (usually the highest cost to a business) to last them until the products could be made and sold. The same goes for taxes, utilities, rent. Ordinarily, the bank gives short term notes to cover this. Now it is more difficult. If you look at the stock market in the 1930s, it did relatively well for many stocks. The problem was securing credit. Many books were written about the event. “Those that fail to learn from the past are condemned to repeat it.”
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p>Today, many wealthy people with ties to the investment firms that bought a large financial interest in these mortgages face a decrease in their wealth. The Secretary of the Treasury is on loan from Goldman Sachs. His job is to ensure that the best interests of Goldman are protected. Rather than work with economists, a plan was devised several months ago to secure $700Billion for whatever purpose the Secretary sees fit. It is suspected that the authorization will be used to keep the market artificially high. This was tried in the 1930s and only exacerbated the Depression but will serve to give a window for the investment firms to unload their shares. Since $700Billion is a figure without a basis, expect the looters to come to the trough again and again. While many in Congress are weeping their crocodile tears for the “poor”, this is a bailout for the rich. The trick is that through compromise and actual usage, the money will be used as the administration wants no matter what is voted upon.
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p>My guess is that eventually the Dollar will be so degraded as to be worthless. At that time expect the reigning government to propose a “European Union” solution. A “North American Union” of Canada, USA and Mexico will be able to print its own money (Amero?) and this will have the potential to solve the problem with fixed expenses, such as pensions. As the population gets older, pensions and government benefits kick in. The costs are more or less fixed for an individual and some have increases built into the inflation rate. American business, especially automakers, are griping about their costs, saying it is making them non-competitive. Were the Dollar to die, the new currency can be pegged anywhere, effectively giving pensioners 10%, 50% or any other amount of the old value. A retirement cut without cutting retirement.
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p>Little wonder Army units rotated out of the wars are being sent home to quell disturbances.
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p>We have squandered the future for our young.
http://www.boston.com/business…
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p>http://online.wsj.com/article/…
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p>I kind of find it unfathomable that people on this board don’t understand that ordinary businesses rely on credit to run their operations. They do actually pay this stuff back or they aren’t a functioning operation; it’s not a situation of a college freshman saying “hey I got a card in the mail! Drinks on me!” with that money.
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p>You don’t think there is a problem here? Know the loonie left (let’s stick it to the man) and the reprobate right (let’s stick to our “principles”, even while we take the whole economy off a cliff) think we should just let events play out, but us poor adults in the middle really just want to get things moving again. 10-15% unemployment and an economy in the tank aren’t going to help anyone. And BHO may exactly wonder in November whether he actually “won” anything, given the likelihood of how things play out unraveling this mess.