Friday, September 26, 2008

It Is NOT a bail out of Wall Street. Just us on the edge.

It is not a bail out of Wall Street. It is a bail out of the US economy. This is not a comment on the plan and blame, another post. Just on the problem. Bush tried in his little speech, but failed miserable. It is hard to due if your playing blame games and trying to sell a vague out line of a fix.

Top down, the Uber-banks have this "bad paper". The bad paper is a mix, mostly good mortgages, some bad mortgages and the rest a mix of insurance and other financial "instruments". All in neat little packages called mortgage backed securities. The Uber- banks aren't sure what its worth and therefore can't borrow against it or even value it as part of their company. So no one wants to lend them money and they can't lend money. At that level it very fluid, very large, very short term loans, from day to day from what i can tell. They depend on that fluidity to survive.

When the money is frozen at the top the big, regional and local banks can't borrow from above and can not lend to any one. That doesn't just include your new house or car loan. It includes farmers buying seed and fertilizer, manufacturers buying material and parts to keep them going, small and large businesses trying to expand, any corner store or mom and pop the carries a small line of credit to buy inventory and well just about any business in this country.

When they can't get loans they either have to severely cut costs or go out of business. What is usually the biggest cost? Labor. Job losses will quickly mount. More people spending less forcing more businesses on the edge out of business and more job losses. It could just keep accelerating bring in larger companies that are already hurting. Inflation? Collapse of local and state governments?

Forget about you 401 k.What about the farmers six months from now that can't plant? And what happens next winter? What about loss of confidence in the dollar? Confidence is the only thing that really keeps the dollar afloat. What happens if we suddenly get 100% inflation? Don't think it can't happen. What if your dollar is worth .50 or more accurately everything is now twice as much. What if it's 200%? How hard will it be to find gas? medicine? food? That is very dark but is more and more of a real possibility.

We are not talking about over the course of years or even months, more like weeks at best. If the credit at the top comes to a complete stop the whole US economy hit a brick wall, a fast, sudden and messy stop.

The bail out good plan or not is bailing out the US economy, not Wall Street! I don't know what we don't understand. Set aside the blame, why it happened and if its a good plan or not, we all are in very real, very big trouble.

On CNN, yesterday now, they was a cattle ranch that freely admitted that he had to borrow 80-100k a yr to keep his ranch in business. Then he proceeded to say that he had to pay his bills and that we shouldn't be bail out Wall Street. What the hell are people not getting. If the problem is not fixed he will have a big surprise when he goes to borrow the money he needs!

Not the problem here but, please vote out every incumbent ( they are a bunch of children that we have not supervised in a very long time). I rather see you vote for a 3rd party and stick it to both of them. It may make no difference, there might not be much left to run any way. Sorry.

Have a nice day?

No comments: