Why The Bailouts Are Not Working

Discussion in 'Economics' started by libertad, Apr 16, 2009.

  1. The bailouts are like taking antibiotics (or in some of your cases, antidepressants) they don't just work right away, it takes 12-18 months to see the effects of moves like this or like interest rate cuts. Give it some time, the economy is not a video game.
  2. Humpy


    Wot no reset button ?
  3. bailouts are not working because its not a liquidity problem its a supply problem(r.e./comm. r.e., products, jobs)
  4. Humpy


    Just so, but I would go one step further and say that it's an oversupply problem. Those that can afford TVs , washing machines, cars etc. already have one usually. There is a large overlap of supply, and so some companies need to fold to save the rest. Should US companies fold or somebody else's, remains to be worked out the hard way !
    With the crisis the poor are even less likely to be able to buy one than before !
  5. Bailout work only for those receiving it. There is a net loss for the whole system when bailouts are issued.
  6. The ONLY reason we have bailouts is because the "wrong" people would lose if we didn't...
  7. Humpy


    It looks suspiciously like they are trying to fix the classic "hole in the bucket" problem by pouring in more money.

    Hardly sensible imho
  8. Brandonf

    Brandonf ET Sponsor

    The bailout is like taking penicilin for MRSA when you need Vanco. Its the wrong antibiotic and it wont work, in fact it will make the situation worse.
  9. Bailouts do not work because the excess production/consumption occured due to the very easy access to loans that consumers used to make up for a wage deflation that has been going on for years.

    Cost of goods/services would increase and consumers had to leverage themselves in order to keep up with the jonses.

    The financial industry would securitize these loans and have them stamped then flip these instruments to the next greater fool.

    The only thing the Stimulus is doing is giving money to institutions holding assets worth pennies on the dollars (ie notes on condos that were "worth" 160K 2 years ago only worth 50K today etc..) They take this money and put it on the coffers just in case.

    Consumers are also not willing to borrow anymore since they fear for their jobs and are just trying to service debt with any penny they can scrounge up and keep a roof over their head.

    So. The stimulus has no effect. The only thing that will heal the situation is lots and lots of time to let everyone de leverage.

    The US only did two things that I consider effective and are keeping things stable and from going into a MadMax depression..

    #1 the FED CP facility.
    #2 the FDIC insuring corporate debt for companies who just need to issue debt for keeping the doors open.

    Everything else will just make things worse in the long run.
    #10     Apr 16, 2009