“Support the Emergency Economic Stabilization Package
We need to protect the U.S. economy and American jobs.
• The problems in the credit markets affect everyone, not just investment banks and big global financial institutions.
• Every day trillions of dollars flow in a circle of credit among small banks, credit unions, regional banks, and large firms.
• If a small town bank cannot borrow funds in the overnight interbank market—say to meet its reserve requirements—it could be forced to call in loans or deny new credit, such as car loans, mortgages, and student loans.
• If millions of Americans suddenly cannot get loans for cars, home improvements or new appliances, business that produce these goods and services will be forced to cut back and lay off workers.
• These layoffs would quickly boomerang throughout the whole U.S. economy, leading to ever bigger rounds of layoffs.
We need to protect the life savings of millions of American workers.
• Nearly 66 million Americans have 401k plans with their retirement savings. The most recent Department of Labor data show that these 401k plans have assets of $2.4 trillion. And Americans hold nearly $20 trillion in equities altogether.
• Almost 2/3rd of 401(k) assets are invested in stocks, with hundreds of billions of dollars of IRA assets held in banks and thrifts.
• The gathering financial crisis undermines confidence in the U.S. financial system and in the U.S. economy.
• The delay in passage of a financial rescue package has contributed to the sharp plunge in the stock markets we are seeing both in the U.S. and around the world.
• Yesterday (September 29th) alone, the Dow fell by 777 points, the largest one day drop in history. In this single day more than $1.1 trillion in U.S. equity wealth was wiped out—from 401k plans and investment accounts both large and small. This loss of wealth was half again larger than the proposed rescue package.
• Congressional action is needed to restore confidence to the financial markets, stop the panic selling of stocks, and allow normalcy to return to valuations.
We need to heed the lessons of history.
• One of the most important lessons in economic history, from the Great Depression, is that a banking and liquidity crisis can become a self-fulfilling prophecy.
• When financial institutions large and small do not have confidence that their deals will be honored, they hunker down and reduce their loans. The result is lost sales, cancelled orders, and foregone consumption.
• The economic rot can spread quickly if it is not addressed by policymakers, especially if panic sets in as appears to be the case now.
• Job losses can cumulate quickly. People may forget that during the Great Depression the unemployment rate hit nearly 25%.
• We simply cannot repeat the mistakes of that era, especially now that we know how that story ended.”
And there I was thinking America runs on Dunkin’.
One thing you gotta love is that everyone who needs this dough to cover insane/illegal activities is desperately trying to avoid usage of the word “bailout.”
For Rick, it’s “financial rescue package.”
Spin on, you crazy diamond.
Unfortunately there is some truth to what GM is saying. If you have never run a business then you may not know what a line of credit is, or how fickle an agreement they are. Most retailers, for example, are borrowing money right now to stock the shelves for the holidays. Normally holiday sales provide the cash to both pay off the credit lines and leave a bit of profit. When those who have cash are sitting on it due to fear, uncertainty and doubt … the music stops. The various forms of credit businesses use for routine operations often have provisions where the lender can call in the entire balance due with 30-90 days notice. In the case of small businesses, often the owner’s house has been listed as collateral in case the business doesn’t pay it’s debt. If the value of the collateral plummets, the bank can demand full repayment right now, even if the business has otherwise been paying on the loan as agreed. Contractors may use credit to buy the materials needed for a job while waiting for payments which only come later. There are countless more examples of how relatively short term credit is the lubricant which keeps everything going. If the credit music stops there are going to be a whole lot of failed businesses and fired workers. Tax revenues will then plummet at the same time when more and more people are in need of food stamps, unemployment payments and the rest. No job means no health insurance for the vast majority of Americans. Get laid off, get sick, get dead. Even people who have been completely responsible can end up on the short end of the stick. It happens every day.
Yet another problem area is for those retirees who did plan ahead. If their pension plans, IRAs and 401k suddenly start paying out on half of what they were paying before, things are going to be very tough.
It is easy to be angry at the poor banking and regulation practices which got us into this mess. But let us not cut off our noses to spite our faces. Hoover era financially conservative ideologues turned a big initial problem (which was caused by unregulated markets, run away greed, etc.) into the biggest personal and financial catastrophe of modern times. Do you really want to go there again?
Do you really want to go there again?
I’m not sure we don’t. When I was growing up, I not only heard a lot about depression era conditions, but I also experienced behavior strongly influenced by it. By that I mean prudent thinking and actions, and a hell of a lot of doing without. Even if the proposed bailout is approved tomorrow, we’re a long way from digging out of this mess, but we’ve all seen many people spend like there was no tomorrow for years. I noticed Sunday morning on my car lot review that IHOP’s parking lot was full. Eating out is a luxury, and anyone who thinks their situation is safe is nuts. So I don’t think the lesson has been learned at all, and too many people will be right back to their reckless borrowing as soon as they can find lenders.
This all seems to be about credit – the smartest guys in the room lent money to the dumbest ones in the room – and it all went to shit.
So now, our government is supposed to give the smartest guys in the room more money to lend to even more unqualified people and businesses?
Why can’t the government take the 700 billion and LEND IT DIRECTLY to individuals and businesses that need the capital? The treasury could process the loan applications and send out the cash, and the IRS could receive the loan payments.
These agencies are big enough to do this. Even if they need a bit of help, I’m sure they can hire some former bank employees looking for work.
Credit crisis solved.
Hell, the government could even make money on this. Lend the money to qualified people and businesses at 3-5%.
Why give the money to the idiots that caused the problem in the first place? They will just make the very same lending mistakes again.
Guys like Wagoner are the problem – they permeate American business, and look at the results.
ted-
“We need to heed the lessons of history.”
Oh, that’s ironic, Rick.