The Fed helps those who help themselves (to your money)

Why can we so readily approve giving away public funds (at a deficit, with no tax base to recover them) to banks and brokerage firms, but we have a hard time allocating money for regular Americans with genuine need?

I don’t wish to debate the wisdom of helping the most wealthy out of a situation their own greed created, because they’re “too big to fail.” I believe business runs on access to available credit, and credit markets need to be relieved.

But if we all agree that the economy thrives when money changes hands, does it make better sense to bail out a corporation so they can cut their losses, bolster their profit, so stockholders have value in their holdings (emphasis on “holding”), or to give the money to people who will actually spend it?

I don’t mean the stereotypically irresponsible things like flatscreens and Nintendo Wii’s (I believe the huge corporate retail chains like Walmart will endure). But if instead of giving insurer AIG some $80 billion to keep them afloat, we floated some of those funds to people who’ve been most impacted by the economy, they could afford things – things like health insurance – and give companies that provide goods and services their much needed capital.

Now I’m going to speculate. (You may want to get your tinfoil hat.) Why can’t we do this? You’re still going to buy that flatscreen and latest-model iPod, aren’t you? (if you’re a good American, and do what you’re told, you’re going to go out and shop to help the economy.) But without available cash, you’re going to buy them on credit. And for that, the banks make money, in the form of interest.

On the other hand, it’s been shown that many people, with large consumer debt, given the funds would choose to lower their debit position. (e.g. pay off some of their credit cards.) This is good for consumers – it lowers their unsecured debt, lowers their interest payments, and gives them more funds to save, if only for that new iPod.

It is, however, bad news for a bank. It lowers their interest income and reduces their assets. Yes, the money you owe them is an asset. It is only “unsecured” to you, in that you don’t have an asset (e.g. a house) to offset the debt. Recent changes in bankruptcy laws mean the bank will get its money, somehow. There is no risk that the poor, defenseless bank, who was only trying to help everyone it could by extending them all ridiculous amounts of credit, even to those evil cheats who lied about the stability of their employment, would get left twisting in the wind.

And if you don’t get your own, personal infusion of bailout cash – if you can no longer pay your bills – even better for the bank. They now get to charge usury… I mean, the default interest rate, meaning it’s going to cost you more money to not have any.

(You can take your hat off now. If the above made sense, then it was working.)

[the following text is stolen from]
The U.S. faces the most serious economic crisis since the Great Depression. Just how deep we go and how long the recession lasts depends upon how quickly we take steps to counter it.

The economy is hemorrhaging jobs at a frightful rate. For all of 2008, the economy lost a net total of 2.6 million jobs. That was the most since 1945, when nearly 2.8 million jobs were lost.

More than 300 of the country’s leading economists have called for immediate passage of a significant and broad-based jobs and economic recovery package.

A package must include investments in alternative energy technology to create millions of new jobs and generate billions in public revenue and tackle the issue of climate change and reduce our dependence on foreign oil.

We must also provide grants to state and local governments so that they will not be forced to raise taxes, layoff workers and cut services in the middle of a downturn.

Finally, we need investments in public infrastructure that will provide a crucial shot in the arm for the economy and create hundreds of thousands of good paying jobs to strengthen our middle class.

Published in: on January 15, 2009 at 2:15 pm  Leave a Comment  

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