Some banks are indeed too big to fail. Sad, but true. We would quickly descend into anarchy should the financial system be allowed to collapse. However, Obama spent more on the stimulus than Bush did in 8 years. Incredible! He seems hell bent on creating more debt than all the presidents before him combined!!! No wonder the Chinese want to bail! Anyone who believes this current crisis was caused by consumers and the financial sector borrowing and spending irresponsibly is absolutely correct. But surely you cannot support the government doing the same! Keynsian economics do not work! It didât work for FDR. It hasnât worked for the Japanese, after no less than 4 stimulus packages. And it will not work for Obama! Below is a diary entry from FDRâs Treasury Secretary, Henry Morgenthau, in 1939 following years of New Deal spending. Why would we even think of making the same mistakes again??? "We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and now if I am wrong somebody else can have my job. I want to see this country prosper. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. I say after eight years of this administration, we have just as much unemployment as when we started. And enormous debt to boot."
Let's simplify the discussion to try and marginalize the political differences. A while back, I was on the bandwagon of 'screw the banks; these banking officials are morons, who couldn't tell a bad loan from their own assholes; why are they getting money and bonuses; the taxpayer is getting screwed; the injection of taxpayer dollars to either buy their stock, whether common or preferred, or to even think about using taxpayer money to purchase their bad assets was a fool's errand, yada yada.' And then, I'll never forget makloda and I think landis came along and started being the first here to go against the populist rage, and calmly assert that whether we liked it or not, we had no choice, unless we want things to get far worse. And I think that's true now, after originally being as angry and as populist as Lou Dobbs or John Stossel. That doesn't mean it's a good situation, or that taxpayers aren't getting shafted. We have an economy that inherently depends on lending. The savings rate is so low, and peoples' assets have fallen so much in value, that, especially now, if you don't have lending activity happening, you will have a never-ending spiral downward into a depression, and then something even worse, if there is no ability for consumers or businesses to access loans to buy consumer goods, merchandise, equipment, hire employees, and do all of the other things that the economy depends on. It's about the circulation of money. If the banking system fails, then the government would have to act as the lender of last resort to consumers and businesses. If the government didn't fulfill that role, after letting massive bank failures happen, then things would simply resemble the stone age. Everyone here who is pissed off and spouting populist anger has every moral imperative to be so and do so, but if they try to pretend we won't have economic apocalypse by following the apparent advice of people like Stossel (I think he's essentially advocating an 'all out hands off approach), then these same people are plainly naive.
what if we are actually hurting the strong firms by keeping the weak firms alive. you think keeping Delphi in business for 4 yrs or so hasn't hurt stronger auto suppliers? How about Buffett saying something to the effect that he will have a tough time competing with firms that get free financing from the govt? still comes down to the fact that bailing out the weak hurts the strong and weakens everything.
If we let all the banks and all the troubled institutions just fend for themselves the worst case scenario would be dropping back to the previous level of economic development, that of the 1900 era. First time homebuyers averaged fifty one years of age. They rented until they could pay cash for a house. Mortgages were the exception and people grew veggies and had goats in their yards. 1) better nutrition 2) less worry about economic things for the average Joe. Obama is not going to do that because it would greatly reduce central control of the population. His stimulus packages are likely to come one after the other until there is no hope for anything but hyperinflation.
You're missing hundreds of sub points. The imperative of preserving the "banking system"-from a practical perspective-is less about facilitating lending than saving the FDIC from a bailout several times larger than TARP. In America banks fail-depositors don't. So the anti bank bailout lobby is saying, "adequetly fund the FDIC but shed shareholders who made a bad bet investing in a poorly run company and shed management who made those decisions." Sort of a nationalized model. Probably not the worst idea accept it's punitive to the banks who did act prudently. You seem to be saying "save the banks so they can continue making crappy loans that may or may not help the economy and that may or may not be paid back." That's nonsensical. If a business needs to borrow just to remain in business then why not sell part of the business to raise needed capital? We all know why. Because if the business "works" existing shareholders want the whole pie. If it doesn't work they can just walk away from the loan. Hence borrowing has become the ultimate "free call" option. That dynamic is going to change. Quickly. Dilution is a word we best add to our vocabularies. Lenders will no longer say "here's the money just pay me a 4% vig and you take all the upside but I'll be left holding the bag on the downside." New Economy Capital will seek participation in the profits. If a lender/investor perceives no profit than no deal. Hardly a reinvention of the wheel.
The past two years have been the buildup phase of the recession. Now, we're just entering into the release phase. This is when the true fallout begins. People that have been stretching themselves with credit hoping things will turn around are now out of ammo. The next phase of this recession will be massive small business bankruptcies. The credit crisis may be easing, but the damage to the real economy is just beginning to show. We will have a small blip from the billions in stimulus dollars, and people spending again for a few months, but this downturn has at least another year to work through the structural issues that are now present.
I agree as a small business owner I am seeing the uptick already, but much is based on expectations 1) Those who survived the 1st round of layoffs from EOY 08, and Q1 are a little more optimistic 2) some are big believers in Barack 3) Many companies, are seeing this as the bottom and using cash to expand operations Still no concrete retuns, although in our sectors we have seen a bottom in revenue declines for the present moment. I am not sure how the next move will play out. I am beginning to believe we have seen the worst, the resilience of the American economy is pretty impressive, its like 2002 when everyone expected the worst after 2001 and we bounced back I still feel that Barack Obama is doing tremendous damage to the American economy but its something that will play out in the years to come. For right now, the illusion that all is ok for the average American will be enough to carry us through the next 12-24 months. Unfortunately, the case will not be the same for other countries.
Why take the politics out of this discussion? The reason we came out of feudalism and into capitalism is because it was a better way of gaining power for the elite. Every other country is not copying the western economic policies because they want their citizen to drive with air conditioning, it's because capitalism is the road to their elite gaining power. Therefore this crisis has NOTHING to do with saving the economy, it was always about saving the rich. Saving the current power structure, the banks. What's all that lobbying for? The government and media control the debate and they thus convert people who don't understand anything. The problem is too much debt, you can't solve too much debt by ANY of the policies taken forth so far.
The business owners we deal with believe in cash, used items and almost no financing. The only thing they ever finance are buildings or capital goods, but right now they are buying cash. They saved their nuts for the winter and winter is here. The idea that if banks failed society would collapse is BULLSHIT. There is no such thing as never ending spirals. The only time that existed was 1929 and government was heavily involved from the beginning. It happens when governments step in. Because they keep changing the rules private capital is sidelined. Its a myth propogated by bankers and sold to the politicians. Banks fails, other banks step in. People who were overleveraged fail. Eventually a bottom is reached. But like a heroin (debt) addict your right we cannot see pass the pain. The damage we are doing to our economy is not the collapse of banks its the massive government interventon that is rewriting the rules of the free markets and making the losers winners and the winners losers. I am still waiting for the great depression. It was a sunny day today in South Florida, streets were packed, people where out shopping, 30 minute wait at the cheesecake factory for a late lunch. 10% unemployment is a correction. People need to get some perspective. If the depression does come it will come at the hand of Barack Obama and Government. And if we do get to that point, it will quickly move to a revolution, I think people are realizing that like a manic dog, the only way to get government to back off is swift vicious punch to the nose.
Maybe it isn't but because the American mythology survives there's always the possibility that we'll see a revival now that the theft of the nation is becoming so transparent.