At what point does a bailout become a lifeline? Is there a point anywhere in there that it becomes another bad idea? The Federal Reserve and Treasury Department got together today and unveiled a new plan to pump upwards of $800 billion more into the struggling US economy. Their hope is that this will jumpstart lending by banks and that suddenly consumers and small businesses will want to use that money.
These plans are as optimistic as TARP, with the Federal Reserve Bank offering as much as $200 billion to purchase securities backed by consumer debt (credit cards, auto loans, student loans, etc.). The Treasury will then insure up to $20 billion against losses (is this confusing yet?) and then the Federal Reserve will purchase up to another $500 billion in mortgage backed securities from Fannie Mae, Freddie Mac and Ginnie Mae (lets call them the three stooges). As if that’s not enough, the Fed will also buy another $100 billion in direct debt issued by those firms. And that’s it for Tuesday.
Experts are predicting that there will be somewhere between 3 and 5 million foreclosures next year alone. These figures amount to somewhere between 8,000 and 14,000 people evicted from their home every day. This is obviously not a small problem and with the continued acceleration of foreclosures it is very unlikely that it’s going to get better any time soon. Something has to be done; the situation has gone from bad to worse and the world economy is now free-falling into a global recession unlike anything imagined before.
I’ve already expressed that Henry Paulsen is not able to help the economy and I believe that time will show he prolonged and worsened the problems that he/Goldman Sachs helped create. I’m hopeful about Barack Obama coming into office because I believe that the world needs change and hope to empower the average citizen to help with improving the economy – to help the consumer believe. Unfortunately, I don’t think that Barack Obama will be enough and that’s where I believe the United States (and the world as an extension of the US) needs a bailout/stimulus plan that helps stabilize the markets while simultaneously improving consumer confidence. Some components should include:
My position has shifted from being angry about the $700 billion financial rescue program to downright scared. Every day Treasurey Secretary Henry Paulsen (former CEO of Goldman Sachs) comes out with some new screwball plan to use the remaining dollars, but like Chicken Little, his whining reasoning is becoming less and less believable. Today, for example, he’s suggesting to relieve pressures on consumer debt, including credit cards, car loans, and student loans, which he believes are “creating a heavy burden on the American people and reducing the number of jobs in our economy.”
Somehow I don’t believe that my student loans, credit card bills, or car payments are creating any undue burden on the American people, and I’m not sure how reducing or changing the terms of my agreements will significantly impact or benefit anyone. For people that it will impact, I’m not sure that I agree this will be of any help to the long-term improvement of our economy. Quite the opposite, actually, because the money will be spent and spooked consumers will be unlikely to jump right back into school, a new car, or even additional credit card payments.