Free Market? Yeah, That

There latest proposal for the $700 billion Wall Street bailout has been agreed too, tentatively. Many economists say the deal is necessary to continue the flow of credit in this country. (blah blah) I'm pissed off and many others feel the same. We've been seriously let down by those leaders who DID (not 'should have', DID) know what was going on and made a decision not to do something about it. I'd like to smack some people in the head. This phrase, "should have known" is a farce used to lessen the damage to reputations. So...

With the initial, angry, statement out of the way, I question the role credit plays in our society as a whole. There is no doubt that the simple availability of credit drives up prices for everyone. It is simple, if company A wants to sell a product, they can sell it for a higher price if customer B has a line of credit. Because so many customers do use credit, the concept permeates many areas of our lives. Schooling, housing, transportation, stereo equipment, even clothing or shoes, pocket books, brief cases, essentially anything that you can put on a credit card costs more because credit allows a retailer to extract a higher price. A price that might be out of the question if the customer were unable to borrow.

Unfortunately, we can't just live without credit. Few of us would be able to save for a house and going beyond high school would become increasingly rare. Would small businesses be able to survive at all? The problem begins when credit becomes to too easy to obtain. This is just what happened during this latest crisis. People who could not afford a house using standard credit calculations, were enticed with extra credit, sometimes in their full view, sometimes not, to purchase what they could not afford. Customers should have known better. Lenders DID know better. This practice drove up the price of housing. The mortgages from these over priced homes were then pooled and sold as separate products called Mortgage Backed Securities. (your initial mortgage provider would still process your payments)

Mortgage backed securities are everywhere. They're in your pension and your 401k. Investors, be they individuals, banks or whoever, are screwed. Or should be. That's the nature of the game. This is where our government let us down. They saw these problems coming and they all know it. And they let it come to this. I'd look toward a management system with better decision making skills (and processes) before laying down $700 billion. Frankly, most citizens are pissed off, at least those who give a damn. I don't think it has hit many of our younger folks yet as things still seem to be taken for granted. One way or another, that is going to change. If they do actually pass this thing, I don't want to here a [expletive deleted] word about socialism from the Republicans for 10 years.

Please feel free to improve my understanding of the issue. Thanks

Comments

[Rob]

Although it's been many years since I've worked on Wall Street, I still know a few good economists. They are good enough that they are paid a lot of money for their opinions. The ones I know agree that this plan won't work. It will clear the river of liquidity blockages but won't really persuade anyone to jump in. Their advice: leave Wall Street alone and try to make the ordinary victims of predatory lending whole. $700 would not be required to do that.
We shall see if they are correct. Unfortunately, I anticipate that the money will be doled out to the sharks who knew exactly what they were doing, and pursued complex financial products exactly because nobody could price them.

[Josie]

Right on Jeff!

I am angry at everything right now.
I am angry with myself for my own credit issues as well. We've always taken for granted that you do things on credit- go to school, buy cars, houses, etc...hundreds of thousands of dollars later reality sets in- I'm just another cog in the credit debacle that the USA is dealing with.

It is going to take our generation teaching our kids not to make the same mistakes for things to really change.

From john and jane doe and their kids all the way to the white house, we as a nation have to understand that the american dream cannot be purchased with visa.

[JollyRoger]

There has been entirely too much focus on the "subprime" and SIV elements of this crisis. The truth is, the number of people with "good" credit ratings who have defaulted is disturbingly high.

The reasons vary, but medical bills and layoffs are large among them.

The root of this problem-the problem that HAS to be fixed before anything starts to normalize-is that the wealth in this country has been transferred up from the lower 98% to the top 2%. The ultrarich, many of who happen to be officers of these failed financial concerns, neither deserve the kind of compensation they get, nor will they spend enough of it to make any kind of a meaningful blip in the national economy. If you want the price of real estate to stabilize, you have to get some money down to the most likely buyers of real estate-and that goes for most commodities as well. This downturn will not end until the decline in income that most of us have seen over the last 8 years ends.