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The Bailout
The Bailout
My husband, Ed, has a masters degree in marketing and finance from Boston University. He explained to me the economic reasons why a bailout, although repugnant, is necessary. Here they are:
The financial markets run on credit, not money. If credit is unavailable (it would dry up without the bailout),then banks cannot lend and businesses cannot meet their payrolls nor buy inventory.
The securitized mortgages being held by banks are clogging the financial markets. They have to be removed to allow credit to flow and banks to function. Since the housing crisis has caused these mortgages to nonperform, part of this bailout must be used to correct the existing mortgage market and allow people to avoid foreclosure.
The issue of bailing out people who were greedy and exploited the system is not pertinent since if we do not have a bailout, the American economy will drop back to 1932, with 30 percent unemployment, massive business failures, bank failures far beyond what we have seen and a worldwide recession unprecedented in modern history.
It might feel good to punish the greedy guys who ignored safeguards and went for the quick fix at the expense of the integrity of our financial infrastructure, but we are destroying it totally if we do.
Any bailout of course must have language that does not allow the previous excesses to be repeated. This is the challenge. That is the substance of the discussions going on in Washington now -- how to do it.
There was a story in the L.A. Times today -- here is the lead.
"Financial industry's campaign donations could help it in bailout
By Tom Hamburger and William Heisel
Firms have given lavishly to both parties in Congress. That could help them get the language they want in the bill - as well as block provisions such as homeowner assistance."
Let's watch this one.
xx, Teal
posted on Sept 23, 2008 11:46 AM ()
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