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4 Comments on Bailout plan without direction
What can I say but, I agree. It is so hard to hit the target when you don't know where it is. Even shotguns will miss the target when they are aimed the wrong direction. I especially liked the fact that one of the banks being infused with new capital was going to use it for acquisition. Now, isn't that a fine use of "OUR" money?
That is a lot of money to streamline into the systems. Combined with bank apprehension to lend, it is bogged down.
Please give it some time to loosen up. But guidelines shouldn't loosen up...the buyer needs to have skin in the game.
Richard,
Thanks for the post. Sounds like a campaign is needed to flood the offices on the hill with demands to put safeguards in place.
Richard, systemic loss is part of the issue. Many of these companies were too big to fail. There failure brought down so many otehr institutions that were connected to them. I.E. if the government lets GM go down, think of all the suppliers that go with them?
The other issue is protecting against additonal losses based on tight capitalization requirements. If the institutions are using a very loos 1 to 10 ratio, then for ever $1 iin deposits, they can ledn $10. That is great until they start losing money. It works conversely also, when they lose a $1 asset (loan) then they must raise an additonal $11 in capital. That is a fairly simplified example, however it does not take long to do the math. There are really only 2 ways to raise capital. Either sell stock, which lowers the overall value of the ntire evaluation or borrow it. Well if every intitution is faced with these loses (and don't fool yourself, 6% foreclosure rate is a lot of money), then the teller window would have to be shut down for too many institutions needing capital all at once. Then it becomes a snow ball affect. When those monoes are frozen, then credit card, construction, car loan, student loan captial needs run the system also. When the capital is frozen, then expenses eventually have to be cut and guess here that starts to happen?......you got it....jobs! It is self perpetuating and then markets forces spin out of control.
Frankly it is way to big to comprehend. One thing is for sure, it sure is going to egt uglier, before it gets prettier.
Have a happy halloween!
Bo