I don't usually get political on my blog, however, the failure of the House yesterday to pass the financial legislation was idiocy at its height. Philosophically, I agree that this is socialist type of legislation and the market (in theory) should be allowed to fail at certain points and punish those who took on too much risk. My skin crawls though when this legislation is misunderstood as "bailing out" Wall Street because the effects of not providing liquidity and getting the toxic assets off of bank's books is not something I want to witness and experience.
My stomach was churning yesterday with the failure of the vote and the subsequent 777 point dive to close the exchange yesterday. If that was not bad enough, I had to listen to that drivel that Pelosi spewed just before the vote (save the opining until after you get the damn thing passed) and people reciting their philosophical arguments all of which is akin to fiddling while Rome burns.
What people don't often realize about the Depression is that it was made WORSE by the tightening of credit. Even though the market crashed in October of 1929, the worst year for bank failures was 1932 followed by 1933. This is because of a tightening of credit and liquidity that caused the dominos to fall and a downward spiral to snowball.
I read in the paper the other day that legislators offices were being flooded with opposition to this bailout - until they realized that their loans were being called and their credit lines no longer available. I'm trying to figure out if it is going to take people not getting their paychecks or being able to get a much needed car or home loan for John Q. Public to wake up and smell the coffee. And I will not get started on how poorly this situation has been communicated or not-communicated by Bush, Paulson, Bernanke, etc. as that is another soapbox entirely.
Yesterday when I realized that Wachovia was gone, over, done, etc., and then the vote failed, I couldn't help but think that if congress had acted a few weeks ago on this that Wachovia could have been saved. And they were worth saving if the bad assets could have been removed and the liquidity and credit been available. Overnight borrowings in the markets and short term debt is FROZEN right now. These are key elements of the banking system and the borrowings that occur each day between banks.
Legislators and others are talking about protection for the taxpayer (yes, I agree these should be there), but they are also talking about helping main street. Hello, McFly, if they don't get this thing done main street IS going to be badly affected and you have to have a job if you are going to pay taxes!!
Here is a quote from the Observer today about the loss of Wachovia from Hugh McColl, Jr. that I agree with wholehartedly:
Hugh McColl Jr.
Dismay was the initial reaction for Hugh McColl Jr., who built Bank of America into a coast-to-coast powerhouse before his retirement in 2001.
“I'm deeply disappointed for the city and for the many hard-working people they have,” he said. While calling the situation “very, very bad,” he cautioned against concluding the worst. “I expect we'll keep a lot of people here, so we shouldn't decide we're having a funeral.”
He touted the ease of doing business in Charlotte, including airline service. “It's a very serious and disappointing day for Charlotte, but we'll rally from it,” he said. “That's the nature of this city. It ain't going to be fun, but we'll make it work.”
He said he became concerned about 10 days ago that Wachovia might be in serious trouble, as other institutions toppled and merger speculation swirled. The industry has suffered multiple losses that would have been unthinkable even a few months ago.
“Nothing like this has happened in my lifetime,” McColl said. “I was born in the Depression.” He criticized congressional delays in addressing the historic credit crisis. “For them to be posturing in Washington is just a joke,” he said. “It means they don't understand. That's really frightening.
“The cost to the American public would be staggering if we don't stop the bloodshed.”
Well said. How about Hugh McColl for Secretary of the Treasury, or maybe Jim Cramer, or Buffet? We need someone who can knock some heads together and do what's best for the financial sector that makes the $$ available for the rest of the economy to function.
We now return to our regularly scheduled programming....
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4 comments:
And today the markets bounced back, almost 500 pts on the Dow. So much of what we have going is running on emotion. We are a fear-based culture in too many ways. I'm hoping cooler heads will think a little longer rather than rush headlong into something just because something needs to be done.
I was ok with the bailout when things were added to stagger the $$ and add some oversight. But I think there's enough of a speedbump now to slow down, make a few more proper adjustments not only in the rules but also in the perception and mindsets of folks involved.
It's not the Dow we need to be concerned with - yes that does run on fear and good/bad news, but my larger concern is the credit markets and the effect on the banking system. Wamu was teetering for months (I believed they were headed for insolvency when I saw their capital ratios 6 months ago), but the death nell for them was a classic run on the bank by larger depositors.
Unless there is confidence in the system, it can fail and the dominos will fall hard. Not having access to short term credit and liquidity is very dangerous for the banking system as a whole. So while the market dove on the bad news, it is just a reaction to a larger problem.
If we don't make the necessary corrections, the cost to the taxpayer will be more. At least this way, the gov't can buy the assets at cents on the dollar, and some of them will likely produce a return and it won't be $$ thrown away.
Martha - Breath. Deep Breaths. I think that, at least for my representative who listened to the email that I sent, agreed that if it is 700B or Bust that there should be a plan C.
Many are recommending options that are, honestly, above my economic comprehension (no thanks to me not paying attention in Coach Yawn's class). So, I leave it to them to explain it to the congressmen to do something to instill some confidence.
But, Walmart is still packed, People will still go to Football games this weekend and opening movies will still rake in big grosses. In fact, cars will still be sold and mortgages will still be closed on. This to shall pass. It did on 9/11. It did from 1987.
While it does appear to me that the 700b dollar "bailout" is a band-aid on a gaping wound, to do nothing (and quickly) would lead to complete consumer confidence bleed-out. After all, our current economic situation is being driven in large part by the consumer. Even less consumer cofidence, high fuel prices and less credit would be the perfect storm indeed. Nice entry, Martha.
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