Psyching Out Wall Street
Allan Sloan, senior editor at large, Fortune looks at the “voodoo economics” behind the bailout: Beltway medicine men
NEW YORK (Fortune) — The proposed bailout of the world’s financial system isn’t really about money, folks. It’s about psychology. In fact, you can think of it as the most expensive piece of psychotherapy in the history of the world.
The idea is that having Uncle Sam buy tons of trashy, hard-to-value financial assets will change the psychology of lending institutions throughout the world. This financial Prozac, as it were, would cure the lenders of their fear and depression, encourage them to start lending again, and induce investors to pump new capital into these capital-short institutions.
But psychology – even when practiced by masters like Treasury Secretary Hank Paulson and Federal Reserve Board chairman Ben Bernanke – isn’t an exact science.
There is plenty of money sloshing around, I know because I have various financial institutions trying to entice me to borrow it at fabulous rates. They are not going to get any business from me, but it isn’t because they don’t have money to lend. I have a solid credit history and pay my bills on time. Lending me money looks like an extremely safe investment, and they need to invest money to make any. The problem is that the banks don’t look like safe investments to other banks. They have gone from gambling on making huge profits, to fear. The banks are afraid, and there is no guarantee that soaking up all of the toxic paper in the system is going to convince people that they can trust each other.
If your line-of-credit has been withdrawn and you have been paying your bills, it probably means that your lender is in trouble. If you don’t have sterling credit, you can forget it.
4 comments
…I miss Alan Sloan from his Newsweek days. He is a diamond in a field full of rocks like Cramer and Dobbs….
He has [had?] a morning gig on public radio’s Market Place Report, but it is short and non-technical.
All I have to go on is anecdotal evidence and my mailbox, but I don’t know anyone who qualifies having problems getting money. I do know someone you has changed banks because his former bank had no money available although he has been a long-time customer and has paid off a lot of short term loans to finance land deals. It may be that he rarely borrows money for more than a year.
Our credit is also sterling. We wanted to put an addition on our house this summer, but the rates never went down enough, so we didn’t. You’d think they’d have been banging our doors down!! Obviously they’re not That desperate. @@
But there is no way in hell I’d borrow from a “bank” – the last time we borrowed, for Hub’s car, we went to the credit union. I have friends who have changed banks, and joined credit unions for fear’s sake.
Brian = one of the few who knows the word is “psych” instead of “sike”. 😉
Moi, their greed is getting the better of their desperation. You can negotiate if you really want the money, which most people don’t consider. I’ve squeezed a few bankers for a couple of percentage points off a deal.
Credit unions are a better deal in the current market because they are self-financing and can’t make the crazy loans that banks have been creating. Your deposits represent shares in the credit union, so you own the “profits” plus they pay interest on everything.
I had a Congresscritter named Sikes who was a psycho, but I know the difference.