Well it seems it may be back to business as usual for the remainder of the Bush administration. One of my big fears which I referred to in my last post was that somehow or other Bush and friends were going to find a way to arrange for their band of corporate cronies to legally abscond with the bulk of the $700 billion bailout before skipping town on January 19th. Today anyway, that may not be the case after all. What appears to be the case instead is that they will do what they’ve always done, nothing.
Hank Paulson announced today that, contrary to the initial pitch, the bank bailout funds will not be used to buy the bad paper that has been the apparent cause of the current economic meltdown. For now the money will be used only for stock purchases to provide operating capital for the participating institutions. As might be expected, the stock market today took another nose dive after the news was announced. At the same time, Congress has made it clear that they won’t be able to come up with a new stimulus package, and even if they did, Bush wouldn’t approve it unless it was coupled with a trade bill. And Obama already said he wants stimulus and trade kept separate.
In other words, all efforts made to this point to bolster the economy were intended to hold off complete disaster until the election. Now that Obama trounced McCain, once it became clear that Johnny Mac was right a few years ago when he was still a straight-talker that he doesn’t know anything about economics, the reins have been released and the complete slide can take place.
As much as I don’t like it, I think this was kind of unavoidable. The so-called “credit crunch” is just a symptom of the real problem. Credit has ceased to flow not because of an absence of cash, but because a lack of value to back up the credit. Since Reagan came into office Americans have not seen much in the way of any increase in real wages (adjusted for inflation) but we all have a lot more “stuff” now than we did in 1980. That’s because some things have gotten cheaper (electronics for example) but more because the amount of credit we all carry has expanded at an unbelievable rate. And that credit expansion exploded after the Bushies came into office because they encouraged banks to lend money for real estate to just about anyone who could at least partially fill out a mortgage application.
As an aside, to those who want to include the
Once so many people started getting loans so easily, prices started to rise and the race was on. In south
On top of it, the full implications of the same situation in commercial real estate, in addition to credit cards which aren’t secured by anything at all, have yet to be felt completely. There is not enough value to match what we all owe. Printing up more cash in medium-sized batches here and there isn’t going to change that. We have a good way left to fall before it all can start to settle and recoup. And I believe that Bush admin really wants to just pack up and slink out, and I wish they would but we’re stuck with them til January 20.
My honest opinion for now is that $700 billion doesn’t come close to what’s really needed. This is a plan similar to what was done by
It took 10 times or so the same relative amount of spending to end the Depression, and