The Butterfly Manifesto #3 (On the Bailout “No” Vote)
By Andy
“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 .
Andrew Baharlias
September 30th, 2008 at 7:00 am
I think the problem for the public is that the vast majority of us don’t really understand all this, but have a vague sense that however this shakes out, we’re gonna get screwed. In a way, it’s sort of like a Mets fan watching the manager go the mound to make a pitching change. There is no good choice, and you’re reduced to waiting for the guy to make what he thinks is the least worst one.
The conflicts of interest and bullshit at the top are staggering, btw. Paulson, for one. The former Chairman of Goldman Sachs holds out his hand for $700 billion and says “trust me.” Dodd, with his sweetheart mortgage from Countrywide (I think I’ll call them up about refinancing through the “friends of the CEO” program. What do you think they’ll say?) and his responsibility for utterly failing to provide proper oversight, republican deregulation purists, democrats who put lending to the poor above financial sanity (worthy goal? Charitable, certainly. Risky too.) …now these guys are telling us we have to fund a bailout for the mess they created, whilst pointing the finger at everyone but themselves.
In the end, I think we all know some sort of bailout deal will get done, because unfortunately it has to get done. A whole lot of people are watching (in my case, pointedly NOT watching) their 401(k)s and IRAs and whatnot plummet. We’re in for a recession no matter what, in my opinion. The question is how “orderly” it will be. The bailout is aimed at keeping things from coming completely unhinged.
September 30th, 2008 at 9:23 am
“And I mostly feel the same way, except for the fact that some of these bad bets put first-time homeowners in a home. ”
Even now, you’re still drinking the bipartisan “Everybody should own a home” hogwash. It’s wrong for people to buy a home they can’t afford. Period. People’s lives are being destroyed because the government encouraged everyone to “help put them in homes” no matter the cost. Homeownership is not an end. Ideally, a person ought to own his home. But if it’s going to break him to do it, it’s a bad idea.
September 30th, 2008 at 9:53 am
If the economy = the Mets’ bullpen we are in worse trouble than I thought.
September 30th, 2008 at 10:33 am
And it just hit me that the bailout = K-Rod for 5 years at $75 mil.
September 30th, 2008 at 11:37 am
I take it you see it as an expensive bandaid, then. I was thinking that it’s an expensive emergency operation, required to save the patient from a great deal of pain and misery. I don’t really know which is true, which is frustrating as all hell.