...because I don't really understand it. I've never understood why people on Wall Street act like such pussies all the time and panic and sell. It seems to me that if we all just calmly agreed to buy instead of sell, then we'd have a thriving economy. That seems simple enough.
I jest, of course. I reveal my ignorance fairly regularly here at GNABB when I discuss different issues, but I will not even pretend to try and comment intelligently on this economic crisis thingie we have going on. Although, a 500 point bounce today in the stock market doesn't sound too bad to me. Hardly the economic Apocalypse we were promised. Dammit, we were promised doom and despair! Where is it?
I have listened to intelligent people on both sides of the issue explain their positions. I guess I was initially impressed that the sitting Republican President, both the Democratic and Republican candidates for the presidency, and most Democratic congressmen all agreed that the bail-out was absolutely necessary. When was the last time there was a coalition of that sort? But then if Nancy Pelosi is in favor of it too, that gives me great cause for concern. House Republicans are silly, reactionary folk. They are generally the bottom of the barrel. There is a reason that the House of Representatives is called the Lower House. But 95 Democrat members of the House also voted against it.
I don't know. I don't do math. I am hoping some of you who fancy yourselves economic experts will chime in on the comments section here and give your opinions...
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I can say this. While I would never considered myself an economic "expert," have never in my life been more viscerally angry at the House of Representatives (Or any other governmental body) in my life. I have been angry before for stupid things that politicians have said. Or been angry about policies that I thought idiotic. But usually my anger was a bit more arms length than what I experienced on Tuesday. I also expressed ALMOST as much anger at 64% of the population of the US (according to a CNN poll) who think the bailout is a bad idea.
Look, is the bailout plan perfect? No. Do I wish we were not having to go through this at all? Yes. Could we be at the brink of a major financial collapse? I think that yes, we possible could.
Let me give you story to illustrate what is happening in my personal life that illustrates the long term danger of what is going on: Banks are not lending. Period. the ability to get a commercial loan of any type is almost zero. All the banks have deeply exposed balance sheets (not because the underlying assets are bad, but fear has collapsed the value of those balance sheets so they can no longer lend.) Now in Houston, our economy has been SOMEWHAT insulated by some of the broader economic shocks that have occurred in California, Phoenix, Miami, etc. There is still quite a bit of demand in industry for what we do (Industrial Real Estate Development). We have been in the process of designing a very large industrial distribution center that will support the energy industry and others. This project will take around a year to build and will employ hundreds of laborers, engineers, architects, foremen, logistics companies, etc. However, now we can't get a loan even though we have some pre-leasing and this is a much less risky project than other projects. Therefore, those hundreds of people will not have jobs, we can't increase the tax base of Harris county, people can't spend money (because no paycheck)and income tax revenue dries up. Because people don't spend money, the economy dries up and the demand for what we were going to build in the first place goes away, and then Houston slips into the dark ages. Then the economic problem is much larger than $700 Billion. The scenario I just laid out would probably take 6 to 9 months to come to fruition. But, that is irrelevant compared to what I think may happen in the short term:
The reason this all went down so quickly two weeks ago is because the CFO of Ford, upon hearing that Lehman was about to go down, decided that, to secure his cash position, draw down on his $500 MM line of Credit with Lehman before they went under. Of course, once that happened, they were doomed to go under anyway, and all the CFOs of the Fortune 100 started making a call to Lehman and other institutions to draw down on their LOCs. Of course, now Lehman went down and their assets were plucked away.
Fast forward two weeks later. When this bill was defeated but a bunch of idiots, it put panic into the market that liquidity was going to freeze up even further. If this bill goes down again, or something constructive does not pass, I have to make the hard decision of whether or not I pill all of our Company's money out of the bank and buy gold and T-Bills, knowing full well that by me doing so, I could easily contribute to bringing down my bank and putting it into bankruptcy. But I would not have any choice as all or our accounts are grossly in excess of FDIC insurance limits. It would be catastrophic.
Make no mistake, the House voted the bill down, not because the thought it was a bad idea, but because people in America just don't get it. They saw this as a bail out of "fat cats" when in reality it has everything to do with their own economic well being. At this point, how we got to this point is irrelevant. So basically Congress members panicked and acted like pure cowards. Putting their own re-election ahead of wise decision making. Shame on them. Culberson, Ted Poe, Sheila Jackson Lee all know better (Well lee may not have known better. She is an idiot). They flinched. Please thank them during election time.
Step 1) Stop the bleeding and step 2) make sure it never happens again. But let's get step 1 done first.
Thanks, Pocky. That is the kind of analysis I was hoping for. Like I said, I don't do math.
All of that said...you and Nancy Pelosi are on the same side of an issue. How does that feel?
Pocky has it. It's the availability of credit that could tank the world economy. It's pretty serious.
If commercial and bank to bank lines of credit were to seize, the effects could quite honestly cause a massive global downturn.
I have a friend who's a broker for Edward Jones call me the other day - had a story on a small business owner who was buying equipment at a Sears for ~$18,000. Sears was offering 10% off upon opening a line of credit so he's save $1,800. He said yes but was turned down (with a credit score of 710!!) That's crazy. My buddy said it probably had to do with the Sears credit department (and I'm sure credit departments everywhere) being unsure of this rescue plan status.
I don't like the socialism of it all and the fact that taxpayers cash is used but this will be less socialist than a massive recession (or worse) under an Obama presidency would yield.
And contrary to what Blink Pelosi and Reid are spewing, the Democrats have ignored this issue for years, and yes, their fingerprints are all over this.
http://online.wsj.com/article/SB122290574391296381.html?mod=article-outset-box
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