Should We Bailout the Bailout?
Is there an alternative to the bailout plan? The problem isn't merely that the lending institutions lack confidence. It's that they lack the money to lend.
We live in a credit-based society. Individuals need credit for mortgages, cars, and medical emergencies. In order to get the credit for what we need (not just for what we want), individuals require a good credit rating. The only way to get a good credit rating is by paying off debt on a regular basis.
For example, we have to live in a careful balance with debt (routinely accruing it and paying it off) in order to use credit to live in a motel while undergoing radiation treatments in another city/state.
I'm fairly certain the Feds can merely raise the interest rate to restore the confidence of lending institutions. A higher federal interest rate will better secure a profit from the loans they can offer.
However, lending institutions have paid property taxes for so many foreclosures that they now have less cash to lend. You can restore all the confidence you want, but they just don't have the money to offer loans, even to safe clients.
That's why lending institutions denied student loans to entire schools' worth of community-college students, as well as to fast-food chains like Sonic.
Businesses require short-term loans to stay afloat. Because companies move products in volume, there's always a gap between the manufacturing of a product, the movement of that product, and the payment for that product. A business needs short-term loans to pay the manufacturers, distributors, and its own employees before the business gets paid for its product. For this reason, every business requires a never-ending supply of loans, just in order to exist.
Now you can see the horror of lending institutions not having the cash to loan.
My gut reaction is thoroughly against the $700 billion bailout. In fact, my gut is pretty sick from my having to think about it. We won't experience relief. We merely won't suffer as much as we could in the future. $700 billion is an excessive amount of money for a preventative measure from which we'll never feel any benefits.
But without the cash to lend, how else can financial institutions offer the loans that keep our economy circulating?
So long as the bailout is a loan that the surviving lending institutions have to pay back, I've changed my mind. The bailout of lending institutions is essential for our economy to survive.
We live in a credit-based society. Individuals need credit for mortgages, cars, and medical emergencies. In order to get the credit for what we need (not just for what we want), individuals require a good credit rating. The only way to get a good credit rating is by paying off debt on a regular basis.
For example, we have to live in a careful balance with debt (routinely accruing it and paying it off) in order to use credit to live in a motel while undergoing radiation treatments in another city/state.
I'm fairly certain the Feds can merely raise the interest rate to restore the confidence of lending institutions. A higher federal interest rate will better secure a profit from the loans they can offer.
However, lending institutions have paid property taxes for so many foreclosures that they now have less cash to lend. You can restore all the confidence you want, but they just don't have the money to offer loans, even to safe clients.
That's why lending institutions denied student loans to entire schools' worth of community-college students, as well as to fast-food chains like Sonic.
Businesses require short-term loans to stay afloat. Because companies move products in volume, there's always a gap between the manufacturing of a product, the movement of that product, and the payment for that product. A business needs short-term loans to pay the manufacturers, distributors, and its own employees before the business gets paid for its product. For this reason, every business requires a never-ending supply of loans, just in order to exist.
Now you can see the horror of lending institutions not having the cash to loan.
My gut reaction is thoroughly against the $700 billion bailout. In fact, my gut is pretty sick from my having to think about it. We won't experience relief. We merely won't suffer as much as we could in the future. $700 billion is an excessive amount of money for a preventative measure from which we'll never feel any benefits.
But without the cash to lend, how else can financial institutions offer the loans that keep our economy circulating?
So long as the bailout is a loan that the surviving lending institutions have to pay back, I've changed my mind. The bailout of lending institutions is essential for our economy to survive.
Related Articles:
-
The Troubled Asset Relief Program (TARP) is a program initiated by the US government, funded... Read Full Story » -
Where to start with this one. First I have to say I am disappointed in BW on this. The article... Read Full Story » -
About Dec. 31, 2011: Let's make 2012 a change for the better. Unfortunately due... Read Full Story » -
According to the latest information provided by a federal watchdog, a government’s program... Read Full Story »
Comments
