Ruth Lee
Today leading Congressional Dems join with a growing Rep consensus in questioning the authorization of the second half of the $700b to Paulsen without conditions that he use some or part of the money to shore up against foreclosures. So far the bailout has been a lot of money (with only $20b of the initial $350b uncommitted) with little results. I don’t think anyone was really thinking it would be a magic wand that would ratchet the economy out of a recession – but something – some result would have been dandy. As of today, there has been no relief in credit markets… which are virtually frozen. There has also been no relief in foreclosures…which are at the heart of losses for banks, exacerbated by the effect on property values. It has been officially announced that the economy has been in recession since Dec 07 (quel surprise!). And today we learned that last month our economy shed over half a million jobs…the most in over 30 years.
For the blinding flash of the obvious… unemployment leads to foreclosures. Foreclosures leads to greater bank loss and reduced property values. Lower property values means a further disintegration in the value of loans. Bank loss means less credit. Less credit means less availability for good companies to grow or weather recession. That means… UNEMPLOYMENT.
So what was the plan? We just give them money and somehow poof the economy turns around? Did no one think that perhaps it would be wise to have them come up with a plan, like with the auto industry? Soon after Citi received a bailout, they announced they were laying off 53,000 people. Ummmmm…that sounds a little counterintuitive… Would it be okay for us to offer $25b to US automakers and they use the money to close down all American factories and retool operations in other countries?
My biggest fear is that this was a wholesale tax-payer bailout of investors rather than the economy. I don’t know that Paulsen’s deep roots in Wall Street would impel a myopic view that making Wall Street whole will somehow rescue an entire economy, but it sure does smell that way. In any interpretation, he works for the American people and not for the investor class…but while American’s are footing the bill for his “plan” – we are left to wonder if that wasn’t the plan… give them grotesque amounts of money and hope for the best.
Over the past month, Paulsen and Bernanke seem to be in reaction mode… and absurdly optimistic that tossing cash in a vortex of uncertainty will effect real economic progress. I would love to know the plan… for this week anyway, because I wonder how long we can sustain tossing out bailouts with no strategic goal.
If they don’t figure out some way of stemming the tide of foreclosures, this recession will deepen into a full-blown Depression. For those of us in the real world, we sense how bad it is out there. With family members losing jobs, people we know – responsible families forced into foreclosure by illness or job loss… we are past the subprime debacle. This is invading core mortgagors. These people aren’t losing their homes because of predatory lenders… they are losing their homes because the economy is failing.
Read more here: “MBA Report Shows Crisis Deepens”.
