Monday, September 22, 2008

$700 Billion Bailout

Today Henry Paulson made the rounds of the morning talk shows. His message was pretty clear, pass the rescue plan quickly or more carnage lie ahead for Wall Street.

The cost of doing nothing would have been far more severe because the clogged credit markets would make it harder for businesses to get the loans they need to keep operating, he said. Doing nothing also would make it harder for consumers to get the credit they need for car loans and other purchases, the Treasury secretary said. Consumer spending accounts for two-thirds of total economic activity.

"We need to look at what is going on in the credit markets and they are still very fragile right now and frozen," Paulson said on NBC's "Meet the Press."

President Bush seemed to echo Paulson's concern when he said that he was,

worried the financial troubles "could ripple throughout" the economy and affect average citizens. "The risk of doing nothing far outweighs the risk of the package. ... Over time, we're going to get a lot of the money back."

He added, "People are beginning to doubt our system, people were losing confidence and I understand it's important to have confidence in our financial system."

Predictably neither presidential candidate took a position on the proposal.

GOP nominee John McCain said he was awaiting specifics and any changes by Congress.

"This financial crisis requires leadership and action in order to restore a sound foundation to financial markets, get our economy on its feet, and eliminate this burden on hardworking middle-class Americans," McCain said in a statement.

Democratic nominee Barack Obama called for help for Main Street as well as Wall Street.

"We need to help people cope with rising gas and food prices, spark job creation by repairing our schools and our roads, help states avoid painful budget cuts and tax increases, and help homeowners stay in their homes," Obama said. "And we must also ensure that the solution we design doesn't reward particular companies, or irresponsible borrowers or lenders, or CEOs, some of whom helped cause this mess."

Wonderful, but we need action and we need it now. Forget politics (OK that was a stupid request), if we do not act now our entire financial system will freeze up for a long long time. Think Japan during the 1990's.

I am not saying that I am happy about creating this "fund". I am also not sure it will solve the problems. I think it will allow the banks and financial institutions to get back on track in a shorter period of time.

This plan makes me nervous from the perspective that Paulson is looking for tremendous power. I think he wants and needs this power because of the unknown nature of what lies ahead. I do not think this is his nor Bernanke's mess but I am glad they are there picking up the pieces. It seems that we are in the best hands available at this time.

Lets remember right now banks are not lending. Average Americans are nervous about their bank deposits. I am sure that quite a few have begun to pull money out and have it sitting in their top draws at home. If banks do not lend, everyday businesses will begin to go out of business. It has to happen.

I try to be nonpartisan but I think this comment from House Republican Leader John Boehner sums it up,

"This would be the most serious financial crisis that the world has ever dealt with. It is not a time to be playing games,"

Sure we need to get to what caused the problem but that is latter after we stabilize the economy. The nation's outdated regulatory system for financial markets must be overhauled but the first job is to get the rescue package through Congress and then deal with a comprehensive regulatory overhaul next year (A quote from Paulson).

Good Luck and Good Currency Trading.



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