Let's break it down, what this comes down to is the over extension of credit. People bit off more than they could chew - morgages were sold, stripped, sold again and put into a pool of morgages and sold on the market, betting on the fact that the underlying morgage holder would stay solvent, continue paying the bills AND real estate values will only go up. Morgage backed securities were considered stable investments at one time and the big investment firms began investing in these pools, buying large shares of the mortgages to resell in their own funds. Low interest rate offers with balloon payments after X number of years were sold, without really examining the risk or the ability for that client to pay once the balloon payment came due. The people who bought were also betting the housing market would go up and they would be able to sell or refinance at the time of the balloon payment. That didn't happen, so you have defaults left and right, and investments (morgage pools) plummet, with them, the investment firm capital goes in the garbage. No cash flow or seriously stunted cash flow!
What does this mean to the average person if the bail out package doesn't come to pass?
It means money get's tight, even non-existence. Banks won't lend because they, themselves, can't borrow from other institutions. Without the lending flow, people will not be able to get loans for things like cars and college. But the worst aspect, that average Joe is not thinking about, is without short term lending, and banks will restrict short term lending in the same fashion as regular consumer loans, companies will not be able to maintain the cash flow they need to keep their operating budgets running.
That means jobs. Jobs go, interest rates sky rocket and inflation goes through the roof. The dollar will plummet and the mom and pop institutions will shut their doors, financial markets crumble and all you've got is chaos and anarchy.
And all this because of politics in Washington.
I think we should vote out every single sitting representative and put in new fresh, honest, every day people who fight for what we need and not what looks good on the record.
4 comments:
The only flaw I see here is "put in new fresh, honest, every day people." The problem is, the every day people will become the same as their predecessors, they become too power hungry and all hell breaks loose.
Thoughtful, insightful post. I agree, this does need to end.
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There was an interesting article on the ABC News website this week saying that part of the problem with getting the bill passed was that the need for it was presented poorly from the beginning. I had to agree. When you've got a president who repeatedly sticks his head in the sand when there's a true crisis (Katrina), or screams crisis when there isn't (where are those weapons of mass destruction in Iraq?), there's no credibility left for him to be saying things like "pass this bill or the economy bites it in a matter of days." Especially when the message a couple of weeks prior was that things were just fine.
I saw Bush's initial speech on the bailout last Friday, and all it did was terrify me. It was hard to know whether everything was really going to collapse by Monday, or if the problem was being overblown and we were about to spend $700 Billion for no reason. I had a strong sense that the people in power didn't have a flipping clue either. That, to me, was just as terrifying as the thought of the economy grinding to a halt.
Yes, I read the same article and they were correct. Piss poor PR and not clearly conveying the understanding of what the economy would do to the little guy without interventionto was the issue. I'm not happy about a 700 billion dollar price tag, but the alternative is even less palatable. One thing I keep looking back on in history is that at the onset of the Great Depression, the government chose to do nothing.
Could they have staved off the depression? We will never know.
Will this? I don't think we will fall quite as hard with this route as we would have if no helping hand was extended. We will stumble a bit, and limp along for a while, but we will be walking and running smoothly faster this way.
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