Why the Bailout Won't End the Liquidity Trap...

Discussion in 'Economics' started by achilles28, Oct 3, 2008.

  1. achilles28


    We were assured banks would ease lending if the Bailout passed.

    Afterall, most of their junk gets dumped on the TaxPayer, thus, in theory, would "free up" their sheets to make more aggressive loans and pass on those cheap Fed Rates to business and consumers.

    The problem - divesting future losses to Government does nothing to recoup Past Losses already realized.

    The hundreds of billions in losses already realized will still have to get recapitalized.

    That means banks will continue to lend at a higher spread with tighter standards to recoup those losses already on the books.

    So the bailout really just ensures the Big Guys don't fail (they would have, otherwise).

    My 2 cents.
  2. You would have to be stupid to believe the bailout will help loosen credit lending, improve the economy, or make the stock market go up.

    Unfortunately 95% of the population is very stupid.
  3. The bailout was NEVER designed to WORK.....it is just an additional "wealth transfer" event prior to the next phase of PLANNED economic carnage ahead.

    "Globalist (wealth transfer) Games 2008"........ENJOY!!! :eek:
  4. short term pain, long term gain:

    buy on all these dips in real beat up but not bankrupt sectors. then go to bed for 6 months. Wake up and count your money.
  5. Nobody is expecting lending to go back to previous levels. Credit will of course remain tight, but the whole point of the bailout is to ensure the credit markets don't completely freeze.
  6. achilles28


    Thats not the point.

    The bailout was pushed as a silver bullet to an otherwise severe recession.

    The severe recession will happen, regardless.

    So credit markets don't collapse. So what?

    Major recession is still gonna happen as liquidity is not passed on.

    All the bailout did was avert immediate bankruptcy for handful of large banks.

    Those large banks - Citi, Wachovia, BofA, UBS - had they been allowed to collapse, would be replaced by the smaller/regionals that weren't leveraged to the hilt to become the new Citi or BoA.

    Instead of a year or two of severe pain, we'll get 8 or 9 years of bad pain.
  7. achilles28


    Point of fact, it'd be better if the credit markets *did* freeze.

    Then all the underwater banks couldn't roll over their short-term loans to finance over-leveraged positions = they'd go under = those left standing are obviously solvent and credit markets would loosen and lend again.

    Right now, its a crisis of solvency. No one knows who's cooking their books or has too much debt they can service.

    So nobody lends.

    All the bailout does is prolong the agony until that 700 Billion needs another 700 billion.

    Let them fail. Then we know who was holding the trash.
  8. I agree a lot of the banks got to big for their own good. They need to fail.

    I trust my local regional bank as they used sound lending practices and hold their mortgages. They have a direct interest in making sure you can pay it back.
  9. D'oh! What a concept!!
  10. dtan1e


    & which bank is that if u don't mind telling?
    #10     Oct 5, 2008