“Damn it, Steve … I’m a lawyer, not an economic theorist!”
Noting the above, understand that I don’t represent that I’m an expert on economic theories and how the bailout (or lack thereof) will affect Main Street or Wall Street. I can tell you that this whole mess has been fascinating to observe because it seems to have made strange bedfellows of George Bush and the Democrats. Could anyone, even 30 days ago, think that the Democrats and W. would team up on anything … and the House Republicans would stand in the way of approving such unholy work-product?
Aside from the grand theater that the bailout has represented, most Americans are not in favor of the bailout for the wholly conservative notion that taxpayers shouldn’t shoulder the burden of bad bets by Wall Street millionaires. And I mostly feel the same way, except for the fact that some of these bad bets put first-time homeowners in a home. But there is a deeper issue that may necessitate some form of bailout. I refer to the short term credit problems that is one of the resulting effects of the economic crisis.
My understanding is that in the past few weeks, short-term loans have become increasingly difficult to acquire for small businesses. As Jayne O’Donnell of USA TODAY wrote on 9/19 ,
Retailers typically fund their businesses with short-term lines of credit and long-term loans that usually require the company to meet certain financial conditions. If they don’t meet them, the banks can call in the loans. Retailers also can borrow for the short term against money due from customers or against their inventory, or for the long term by issuing bonds.
If I understand this correctly, retailers who don’t have long-term lines of credit set up, could be faced with the crushing issue of how to make payroll and/or pay for the operational costs of running their very large business. Extrapolating this to its logical small-business counterpart, the potential effect is sudden and widespread unemployment as these entities (which are understandably cash-poor) are shut down or at least placed in operational suspension as their ends don’t meet.
If all of the above is true, we are not looking at the second coming of the Great Depression, but we are certainly looking at teetering on the edge of a solid recession.
I invite your comments and corrections. The problem with government today, is that no one understands the remedies which are being applied to fundamental problems in the economy … including (potentially) the lawmakers who fix them.
A final slightly unrelated note. With JP Morgan now acquiring the assets of Wachovia, now is a good time to pick up a very high 1-yr CD with a teaser 5.00% APY offered prior to Wachovia’s collapse. Thanks to Bankaholic.com for that email newsletter .