Like we don’t get it.
Tonight Senator Kit Bond on Fox News “Nightly Scoreboard” gave as his examples of the “credit market being locked up” the fact that the states of Maine and Missouri could not sell bonds to build highways. Is he serious? We need for congress to pass a $700B package so that a couple of states can repave some roads and build a few more? These cannot wait a couple of years? Please.
Dave Ramsey, on the same show, said that there are three tiers of credit: The top tier is the major players, LIBOR and such, which have slowed considerably. The second tier is the average Joe with excellent credit, who wants a mortgage or a car. That money is available. I should know: I bought a used car in July with no problem and while in a bank yesterday the offer of a home equity loan at prime+0% was still in full swing. The last tier was the poor credit folks that were involved in the sub-prime crisis to begin with. That market, of course, is gone. The reality is that there is credit, not a “seize up” like is talked about by every talking head.
The government has already approved $29B for Bear Stearns, $85B for AIG, and $200B for Fannie Mae and Freddie Mac, none of which has solved the problem. Washington, which gets virtually nothing right, now wants to print up more cash to make the American citizen the biggest owner of bad mortgages in the world. In addition to the aforementioned $300+B, the Federal Reserve has released, just this week, more than $600B of cash into the system. The taking over of Fannie and Freddie added $5T to your balance sheet and mine, or subtracted from, as the case may be. We are smelling the Fed’s printing presses burn up printing all the money being injected into the system which, as smart people know, causes inflation. Inflation is a hidden tax that affects everyone by reducing the buying power of your dollar and the value of your dollars in your savings account and 401(k) or 403(b).
The fear of the market has already been exposed. Mad Money’s Jim Cramer believes that “no bailout” will bring the DOW down to 8,800 or so. My retirement has already taken a hit in the order of 20%. The market wants money and probably will not be satisfied with less that a few more hundred billion put into the system. I’m patient enough to wait (but I have learned a little about how to plan when I’m sixty). Of course, the market is due for a correction. The DOW components might get shuffled around a little, but there will be new stars that shine in the shakeout. If Warren Buffet can find deals, so can we. Or we can buy Berkshire Hathaway-B shares and make money with him ;^)
If credit tightens for Main Street, as Princeton’s Paul Krugman said on MSNBC, then that means credit card interest rates could go up and credit limits could go down. And this is bad how? The fact that Americans are too far in debt is standard fare for the business pages. A lid on credit is just what some Americans need. If, as Donald Trump has mused, the price of oil will fall up to 70% with a large stock market correction, then we will all have saved enough money on gas to offset some of the credit we were having to use. If, that is, we can get the oil companies to acknowledge that the price of oil has indeed fallen and quit making up excuses to keep prices high.
The bad bill that was surprisingly defeated in the house of representatives has taken on a new life and new form in the senate. As is usually the case, add-ons now include energy tax breaks, movie tax credits, wooden arrows for children and mining subsidies or credits. Some think those add-ons will not be approved, but that the original bill will be passed. We’ll see.
My point is this: Those of us who are paying attention know that doing nothing is probably going to bring some rough times. We believe that we are ready to endure it. We know that both Washington and Wall Street are thoroughly screwed up and delaying the needed fix is not the answer. There is nothing to gain by continuing to buoy bad business decisions. The reality is that not passing the bill is not the same as “doing nothing.” Not passing the bill is saying that the market can work it out, though some will fail. Socialism is not the way to go. We can exercise patience.
If Americans are anything, they are these two things: creative and resilient. We are resilient enough to endure and creative enough to overcome it.
well said Marty…you are exactly right my friend.
Comment by irreverend fox — October 1, 2008 @ 8:28 pm
Thanks for the post Marty! I appreciate the insight.
Comment by Tommy — October 1, 2008 @ 10:06 pm
It’s okay, Marty. Nostradamus (sp?) and the Mayans say the world is ending in 2012. So when Jesus comes back, all poor credit will be forgiven along with all the other sins. So, essentially, this bailout just gives us three years of fiscal security until that happens. No worries.
BTW, how are you these days? Is NBBC great as always?
Comment by Micah Brake — October 1, 2008 @ 10:50 pm
I don’t know what the answer is, but I keep coming back to the same question regarding the bailout. I think we can all agree that greed, covetousness, and the love of money (both on the part of corporations and individuals) went a long way toward getting us into this mess. That being the case, how can more money fix the problem? In my opinion, it wonâ??t. It will just make the bubble a little bigger so that the next time it bursts weâ??ll be in even more trouble. We have a problem; we should take our lumps and move on.
Comment by Jason Barr — October 3, 2008 @ 11:18 am
I would urge caution listening too closely to Dave Ramsey on some issues, such as the bailout. Although I like Ramsey and believe strongly in his zero debt philosophy, it does not always translate to every area of life. I have read his rant about the bailout package, and it seems (to me) to be an extension of personal debt philosophy–all debt is always bad all the time.
He says that yes, there will be some bumps along the way, yes the Dow will go down, and yes you will lose value in your retirement package for a while. But then, it will eventually come back.
It is very difficult for a man like Dave Ramsey, a multi-millionaire, to fairly judge the effectiveness of this bailout provision. It is much easier to hunker down and ride out the storm if you have piles of cash laid aside.
I have already witnessed first hand the impact of this problem. Businesses are having a hard time getting loans. I have a client who has owned a car dealership for 28 years. For the first time in the history of his business, he sold zero cars in September. Now if this guy is a customer of my bank, and a customer of the local grocery store, and a member of your church, we’re all in trouble, because he made no money in September. This is the trickle down effect of the credit markets being tied up.
The federal government has the depth to take these bad mortgages, and eventually turn them around, and make a profit for the taxpayers. Most banks, even the biggest ones, don’t have the depth to do it.
Yes, greed is the reason why this happened. But there are many who are complicit in it. In my opinion, letting the whole thing go and allowing the chips to fall where they may is the worst thing we can do.
Comment by jasonk — October 4, 2008 @ 9:02 am
Jason K-
I’m glad you stopped by; I knew that you would have an additional view being in your industry. Thanks for sharing it.
The thing that I liked about the Ramsey plan was the fact that it placed responsibility on those who were responsible, while providing some money to assist the bailout. Even if the money is payed back over the next few years, who is simple enough to believe that it will actually go to pay down the debt? All excess money will go, as it always does, so someone’s pet pork project.
Capital Hill is, with few exceptions, populated by morons, thieves and fools. It has long been this way. As a friend of mine said, “Why do we have people running the country that most of us would not let into our houses without taking an inventory first.” I agree that this meltdown is indicative of more systemic problems. I would rather have seen us ride it out with ingenuity and patience. Now we’ll never know.
Comment by Marty Duren — October 4, 2008 @ 11:30 am