Bailout

Look at it like this...The fallout should we NOT do the bail out - companies of all sizes, even small can NOT get credit, so in a pinch, if they can't make payroll, too bad, they get no line of credit to keep the company afloat for a month or so until they get on better ground - so companies of all sizes will take hits - the blue collar workers do not understand they are at risk - no credit for ANYONE - so no paychecks potentially for ANYONE. A lot of ppl don't realize that their employers have had to or will have to have credit to keep payrolls - so they say "NO, we won't bail out these companies, let them sink..." well, you've signed your own pink slip basically. So, people are laid off in every business imaginable, what happens, they default on more home loans, more car loans, credit cards, then bang, more banks go under because people aren't paying thier bills and thus more credit is cut off from companies, more layoffs - it's a continuous cycle that will NOT end until everyone is unemployed and bankrupt...peoples credit cards, well, they may see the credit lines decreased or capped where they are currently, stores won't be selling as much because people won't have cash or credit to make purchases.

 

I'm not really disagreeing with anything you're saying but we are making a couple of assumptions. One being that all these companies are using credit to run their companies. You said it yourself, if the company is in a "pinch" they won't be able to get credit like they used to. I would hope that most companies do not operate that close to insolvency. The company I work for pays it's employees from the profits it makes from products it produces and sells.

I think there are many things I'm hearing about that are better solutions than giving a 700 million blank check to Paulson. Get rid of the capital gains tax. Change that mark to market accounting law. (Look it up) I like the insurance plan for companies. It's going to be tough but the market has to correct itself. Too many people are having a knee jerk reaction to stocks dropping and just want to do something as fast as possible to stop the bleeding all the while not treated the patient and not realizing that the tourniquet will end up killing the tissue.

 

Citi is on the hook for the first $42 billion in losses. After that, the FDIC is covering any losses. The Fed has issued a "support statement" that says it will provide liquidity to WB until the buyout is complete. First time I think that's been done solely for one particular bank. Yes, it was a failure and yes, the FDIC, at the urging of other regulators finally realized this and the systemic risk involved.

 

Basically, the bailout is to bailout the FDIC. The banks have failed, more is definitely coming. The bailout will bailout the banks - but then the taxpayers will be left to bail out the FDIC.

FDIC can't cover this shitstorm. The bailout is attempting to keep things from becoming Mad Max, but the bailout won't stop things from being very difficult.

 

My.02

You have say a sawmill. They need to buy logs to cuts boards for a contract with Lowes. They borrow the money to buy the logs, cut them and sell them to Lowes and payoff the SHORT TERM loan and make a profit.

Then Lowes takes a loan to buy the boards knowing that they will sell them for a profit and payoff that loan.

Or that's the way it used to be.

 

Now, Lowes may not be able to get that loan to buy the boards in the first place. No boards equal no construction equal less jobs, etc. Credit freeze fucks up everything.

 

Or, possibly, other lending institutions who didn't make some huge financial mistakes are still in the business of making money so they do what they do to make money. They make loans.

I heard a good narrative on the radio yesterday about a used car salesmen who was complaining about the market saying he couldn't get people to buy cars because he couldn't borrow money for the loan.

"You mean you can't get a car loan for a customer at all," the host asked.

"Well, yes, I can get a normal loan, no problem," he answered. "I just can't do a no money down, roll over their trade-in that they're 6,000 dollars upside down on, and finance 140% of the loan."

"Oh," said the host. "So you just can't make a bad loan."

All I'm trying to say with this is that the economy is not on the brink of collapse.

 

LIBOR jumped over 400 bases points in the last couple of days. Even the good banks are paying out the ass in overnight funding. This is what is helping freeze up the credit markets.

People are just going to have to learn they can't make stupid loans anymore. Your example says a lot.

 

This is what I was getting after.

http://www.charlotteobserver.com/business/story/226799.html

 

Thanks. Good info. It seems more and more is being made public.