Consider this:
- (Big money center) banks often deposit money with each other.
- Good banks won't place their money with poorly performing banks for fear of risk.
- As a result, all inter-bank deposit activity suffers (liquidity).
- The amount of money then available to loan out to businesses and consumers (or available as lines of credit) decreases because only with a liability (deposit) or capital on their books can a bank finance an asset (loan).
- less loans means less economic activity means less jobs.
- if your loans can't be funded then watch for your credit card limits and lines of credit to be reduced. In extreme cases, watch for your loans to be called (paid down or repayment) -- even if you are current in your payments!
Also consider:
- Lehman Brothers was the largest commercial paper market issuer in the country.
- If companies can't easily issue commercial paper then they can't finance short-term inventories which means they have to lay people off.
- Yes, someone will take Lehman's place but that doesn't happen over night. (Remember they were put into bankruptcy and not bought out.)
The problem with the bailout:
- It rewards bad companies for doing bad things, however, there are few options available.
- Banks not funding each other can have a big domino effect.
- During the depression 2/3 of the banks in the U.S. went bankrupt. Imagine the carnage if that were to happen today? What would happen in your town if 2/3 of the banks were gone along with everyone's savings?
- Short of the Fed being allowed to fund the good banks and, thereby increase liquidity, I am not sure what else they can do. And that last option would involve setting up some sort of state bank which I am sure would not be popular with the House Republicans. Also, who decides "good"?
- Long and the short of it is that ARMS were a small problem but left too long and they became a big one.
- A component of fraud is also likely as some are saying that ARMS were packaged and sold as AAA mortgages.
- There will be considerable inflation of prices AND devaluation of the U.S. dollar whatever route is picked to solve this mess.
I don't know if that adds anything to the conversation but I thought I would add my 2 cents.
Quote:
Originally Posted by Useless Warrior
I would LOVE a detailed explanation about how this will truly effect the average American, from the financial gurus, if the bailout doesn't pass. I keep hearing threats of doom and gloom, but without any real clarification of what the doom really is.
At this very moment, I'm quite happy that I don't have any money.
EDIT: THE BILL HAS FAILED. ANARCHY!!!
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