by William Neikirk
What a story! Embattled Main Street rises up to smite Wall Street. The hordes celebrate. The financiers fret. The little folks have flexed their muscles.
Too bad that isn't the real story. The real story could well be that Main Street shot itself in the foot, but won't know it until banks close, their savings are threatened, and layoffs accelerate. That could happen sooner than you think.
The $700 billion "bailout" plan for financial markets is aimed at getting rid of a large number of toxic mortgage-backed securities that no one wants to buy. But that is a mere means to an end.
The real purpose is to induce bankers to start lending again, so that credit markets do not completely seize up and send the economy spiraling into a deep, deep recession--a Main Street recession, if you will. When the banks don't lend, businesses can't find funds to keep afloat or to invest in job-creating enterprise.
Still, even if the bill should pass, there is no assurance this will work in this complex world.
The bill that took a licking in the House on Monday could be in for some more amending, something that might actually be more to Main Street's liking, another sweetener if you will. For instance, some are suggesting that the Federal Deposit Insurance Corp.'s guarantee of bank deposits should be enhanced--from $100,000 to perhaps $250,000.
Larry Lindsey, a former economic adviser to President Bush, is among economists who suggest this step to give Main Street confidence that deposits are safe. He said so on CNBC Monday night. One of the big problems in a crisis like this one people get scared and rush to withdraw their savings from banks they fear could fail.
If people know their money is safe, said Lindsey, they will keep their deposits intact, and banks will have more incentive to lend. There has been a rush to "safe" money on Monday after the bill failed, as many Americans rushed to Treasury securities to park their money. There was been so much demand for government securities that their yield is practically zero.
And now for the hard part: Some analysts fear that the bill may not do the job because the mortgage-securities problem is a worldwide phenomenon. David Smick, a businessman and author who has written about the uncertainties of global finance, said the solution truly has to be global one, meaning the U.S. should work with its trading partners to craft a global bailout plan to reconstitute the market for asset-backed securities like mortgages.
"There are $6 trillion in global money market funds sitting idle, waiting, in part, for these reforms," Smick said in a statement on Monday. At some point, Smick added, global central banks will have to reduce interest rtes and perhaps even cut taxes to save the world economic system.
Bernard Baumohl, managing director of The Economic Outlook Group LLC, noted that the Federal Reserve pumped $630 billion into the global financial system on Monday in an effort to ease fears and provide liquidity.
"Even so," he said, "there is still a palpable fear many more global banks will go under in the weeks ahead." A worldwide credit crunch is in nobody's best interest.
Congress is playing with fire on this legislation, and Main Street could be the real loser.
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Comments
I fear we have shot ourselves in the foot. Funny how the republicans had no problem with 1 trillion for war...but nothing for us. Those armchair quarter backs must be very smart when it comes to economics.
Posted by: bill r. | September 30, 2008 7:07 AM
Main Street vs Wall Street. They are not opposed. Wall Street has been crushed by highly speculative investments. The markets will shake these out. The 6 trillion in global money market funds will come back in when they see value, not because they believe their money is not at risk. Markets work! Congress doesn't!
http://www.boppoll.com
Presidential candidtates, they just add to the stress!
Posted by: Main Street? | September 30, 2008 7:08 AM
Looks like the Republicans are vying for the Herbert Hoover award.
Posted by: cta | September 30, 2008 7:08 AM
The winner...I heard this morning on the news Campbell Soup was the only stock that went up...anyone for some comfort food in these troubling times?
Posted by: lochnessmonster | September 30, 2008 7:38 AM
Billy,
Funny how we would never have been in the war if Clinton had not punted on the eight to ten opportunities to catch bin Laden
http://www.liveleak.com/view?i=a55_1187399013
Posted by: Terry | September 30, 2008 8:04 AM
THIS CRISIS WAS CAUSE BY A HANDFUL OF CORRUPT DEMOCRATS AND A HANDFUL OF EQUALLY CORRUPT FANNIE MAE OFFICIALS.
THIS IS THE VIDEO THOSE CORRUPT FANNIE MAE OFFICIALS & AT LEAST FIVE CORRUPT GOVERNMENT OFFICIALS DON'T WANT THE AMERICAN PEOPLE TO SEE:
http://www.youtube.com/user/TheMouthPeace
If you agree, then PLEASE pass it along To All Your Readers And To Your Frineds. Someone Needs TO GO TO Jail For This !!
And Here Is Another Shocking Fannie Mae Video
http://www.youtube.com/watch?v=_MGT_cSi7Rs
As Soon As The Source Of This Meltdown is exposed, the sooner those few will give up their strangle hold on the Democratic Party. And The Sooner This Sorry Chapter Will Come To A Close. But as Long As Those Corrupt Democrats are allowed to hide behind their flimsy accusations of Republican responsibility, this charade will continue. These corrupt Democrats broke it, now let’s shine some light on them and disinfect the situation. The sunlight of knowledge is a miraculous disinfectant for political corruption. Will You Do Your Part And Pass These Videos Along To Everyone You Know?
Posted by: GeraldD | September 30, 2008 8:19 AM
This, and most other problems left to Congress for "solutions," are a direct result of the lack of TERM LIMITS.
These people are only concerned with getting re-elected, not with serving their country. Just watch the video clips on network news....watch all the jockeying for position in the background to get in front of the camera! Smiles for the folks back home!
Posted by: zed | September 30, 2008 8:23 AM
View from Australia. This one is worldwide. The million monkey mobs, city folk, cannot live forever by selling each other insurance, while the farmers and the fishermen age.
Never mind, - the money that just evaporated was Scotch mist anyway - it never existed. The people who borrowed it were supposed to create it, but could never have worked hard enough or long enough to do so.
We need some real things now, like a whole new, less oily, lighter world transport fleet, a few more backyard and street-side veggie patches and fruit trees, and suchlike. There's lots to do, don't jump yet America, we need you (just not your gunmen or your waterboard men).
Posted by: Peter Ravenscroft | September 30, 2008 8:52 AM
Left Logic:
When Republicans have control of Congress, it is Republican majority's fault for not passing legislation to stave off economic trouble.
When Democrats have control of Congress, it is Republican minority's fault for not passing the bailout.
If this makes any sense to you, you must be a Liberal.
Posted by: Bruce | September 30, 2008 10:16 AM
I guess it is kinda like Main St shooting itself in the foot-- but maybe it's more like-- we've been down for so long we don't care if we let Rome burn down with us. What's the trade off for Main St here anyway--don't support it we pay for it, support it---we pay for it. Nope Wall St wins again. Wall St always wins.
Posted by: inept financial institutions shouldn't get a pass | September 30, 2008 10:17 AM
Billy,
Funny how we would never have been in the war if Clinton had not punted on the eight to ten opportunities to catch bin Laden
http://www.liveleak.com/view?i=a55_1187399013
Posted by: Terry | September 30, 2008 8:04 AM
Well heck Terry don't stop there....lets go back further in history and blame Bush l . Why didn't he take out Saddam then? Why...oh that's right...because they knew what a disaster taking him out would be.
Posted by: bill r. | September 30, 2008 12:22 PM
BillyR - You are right - I wish Bush41 would have taken him out. It just would have been nice if Clinton had enforced the UN Resolution on chemical weapons.
Posted by: Terry | September 30, 2008 5:54 PM