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What’s The Problem?

If you are going to create a solution, you have to define the problem. Paulson and Bernacki want to throw money at Wall Street, but they don’t explain why, or what the money is going to do to solve “the problem”, because no one has defined in clear, unambiguous terms what precisely the problem is.

There has been talk about a “liquidity crisis” and a “credit crunch”, and that this is all part of the “housing bubble”, but how does buying up bonds and derivatives, rather than the mortgages, do anything other than save fools from incautious investments?

When you read an article about large tech companies borrowing billions to finance stock buybacks and to pay higher dividends, you have to ask how can they do it if there is no money in the system [liquidity crisis] and no one is willing to make loans [credit crunch]?

You might think that only some people are having problems because they wasted their money and are a bad credit risk. I don’t think raising their “credit card limit” is going to help these people.


1 LadyMin { 09.23.08 at 1:21 pm }

Whatever the problem, you can’t cure it by blindly throwing more money at it. “Trust us, this is the solution” doesn’t work for me when it comes from people who thought the economy was “fundamentally strong” until a few days ago. They are either stupid or liars. I don’t want either making that kind of decision in haste.

2 LadyMin { 09.23.08 at 1:37 pm }

I forget to define the problem!

It’s not liquidity or a credit crunch. It’s a solvency problem. Everyone has too much debt. I don’t see how giving (incompetent) banks more money to lend is going to help. Consumers are already under water and so are some corporations.

Housing prices need to fall back to a level more in line with people’s income. Then they can afford to borrow and still afford their other bills.

I don’t have the answer by the way. Maybe people need to start saving more. There’s a concept. Don’t buy anything you don’t absolutely need until you can afford to pay for it.

3 Steve Bates { 09.23.08 at 3:34 pm }

And if you, LadyMin, like me, happen to be completely solvent… I have very little debt, and could pay it all today if necessary… Hank Paulson will give you some of his debt, or rather, some of Wall Street’s. Individuals of modest means are required to take responsibility for their debts; banks and large corp’s, on the other hand, can behave any way they like, because those individuals of modest means will be forced to bail them out. Grrr…

4 Bryan { 09.23.08 at 3:44 pm }

The financial system has spent years conning people into borrowing more money than is absolutely required or even reasonable. They get somewhat irate when I tell them I don’t want a credit card. My Mother has credit cards and moves any balance every time someone offers her 0%. The only reason she uses them is if they are 0% because all of her cash is in interest bearing accounts, and she has been in cash for some time.

She made good money under Clinton, but it didn’t take long for her to figure out that the Republicans were destroying the market.

Wall Street leveraged everything and now they have to settle their accounts. It always happens.

5 Bryan { 09.23.08 at 3:47 pm }

People with modest means are the only ones with actual cash, Steve.

The big players in the financial system are longer trusted or trustworthy. They bet more than they had and the time has come to settle up.

6 LadyMin { 09.23.08 at 4:18 pm }

One of the many reasons this situation annoys me so much is that I am one of the solvent minority. I’m not irresponsible; I don’t buy what I can’t possibly pay for; I deserve better from my tax dollars. I want health care and infrastructure not welfare for rich bankers.

I do use credit cards but only for convenience and to play their game to my benefit. I get my 3% cash rebate and always pay the bill in full each month.

7 Bryan { 09.23.08 at 7:33 pm }

You even worse than my Mother, Lady Min, you make them pay you. That’s a better rate than you can get for a savings account.

They are asking to keep the profits and have others absorb the risk. It’s past the time when the adults need to take over and give the “children” a time out.

8 Story of the Day { 09.24.08 at 11:12 pm }

[…] Why Now?: What’s The Problem? […]