Correct me if I am wrong, but did I just hear that Paulson wants consumers to take on more debt in order to solve this economical crisis?!?!?!? At a recent press conference, Treasury Paulson said, "This lack of affordable consumer credit undermines consumer spending and, as a result, weakens our economy." Are you serious Mr. Paulson?
Let me see if I get this straight. First off, government programs were enacted in order to convince banks to over extend themselves to consumers. Consumers were encouraged by artificially low interest rates to borrow more than they could afford. These loans that were created were then bundled up and sold to investors around the world. These investors, to guarantee their invested money should these bundles default, also bought insurance to cover their bets. The consumer, who is underwater in debt, defaults on the loans they were encouraged to take. Insurance companies that provided bet insurance did not have enough money to cover the payments and had to ask for help from the Fed. Banks that held these bundles now have no income from these portfolios and are asking for help from the Fed. Banks can't lend out to companies as their income has halted and those companies that only survive because of credit are calling to the Fed for help. So now government needs to encourage more borrowing by the consumers who cannot afford to make payments?
This is lunacy. Good bye dollar. Hello IMF
Based on a recent poll from CNN it looks like the American public has yet to grasp where this money is coming from and feels injections by the Federal Reserve will save us all. Just look to Argentina, Zimbabwe, Weimar Germany, Rome, and others to see just how effective this really is. It is wonderfully effective in destroying a currency and its country.
Borrow all you want, but the piper will be paid.
©2008 Tim Gandee, all rights reserved. You must have written permission from the author in order to republish this work.
Published: Tuesday, November 25, 2008
Last modified: Tuesday, November 25, 2008
The views expressed in this article are those of Tim Gandee only and do not represent the views of Nolan Chart, LLC or its affiliates. Tim Gandee is solely responsible for the contents of this article and is not an employee or otherwise affiliated with Nolan Chart, LLC in his/her role as a columnist.
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Reader Comments:
Posted By: Jahfre Fire Eater
Date: 2008-11-25 16:58:41
I think the goal is to get people to spend more.
Paulson has seen that American's have very little savings to tap so the only way they can spend more is if they borrow more. You know what they say, when your only tool is a hammer every problem looks like a nail. He has tools to make borrowing easy. He doesn't have tools that make people spend more. He acts as if he thinks it matters what part of the rope he grasps to push.
-Jahfre Fire Eater
Posted By: Walt Thiessen
Date: 2008-11-25 17:26:30
You're right...perhaps more right than you know. The intention is to put America deeper into debt because creation of debt is precisely how new money is created. They're doing everything they can to reinflate the economy, with no consideration of the consequences that overinflating that might come later on.
Posted By: Master C
Date: 2008-11-25 17:44:45
R3volt,
As usual, you misunderstand the whole situation. But, then, that may be because you WANT to.
Paulsen is not encouraging BAD credit risks, people who have OVEREXTENDED themselves, or those who are MARGINALLY capable of qualifying for a loan to borrow money frivolously. He wants those who are RESPONSIBLE borrowers with GOOD JOBS and the ABILITY TO REPAY the loans to do so.
You're like the guy who CAN'T SURF hearing someone say "Surf's up", and you think they're calling for YOU! No one is encouraging poor credit risks or reckless spending.
The BELL MAY TOLL, but it TOLLS NOT FOR YOU.
Master C
Posted By: r3volt
Date: 2008-11-25 17:51:56
Part of me thinks that the credit crisis is not solely banks not having the capital to lend. Perhaps it is the consumers that are realizing that borrowing life ain't all it's craacked up to be.
I know I instantly stopped my borrowing habits the day I realized I was submitting myself to having a master. Perhaps more people have come to this reality than the media is letting on.
If true, then no amount of money injected by the fed will stop consumers from ending their borrowing habits. If it is consumers not borrowing that is causing this credit crisis, it still will not be fixed by artificially low interest rates and easy credit.
Similiarly, the financial problems of these banks, corporations, investment firms, and insurance organizations will not be fixed by artificially low interest rates and easy credit. Why would it? I have yet to see one compelling argument that proves it would. History can't prove it either.
Thankfuly I have been able to continue within my means for some time and have been able to hack away at the car and the house loans more.
I just hope inflation doesn't blow me out of the water and my job is there.
Posted By: Michael Seebeck
Date: 2008-11-26 09:06:42
The banks have the funds and they're sitting on them. In the meantime they whine about not being able to lend and they get even more money. Lather, rinse, and repeat. Paulson is being playing like second violin and being their gatekeeper to the vault, and we get the bill.
Let them die, and leave MY money alone!
Posted By: ed
Date: 2008-11-26 09:32:39
you say "First off, government programs were enacted in order to ==convince== banks to over extend themselves to consumers."
hmmmmm
the "convice " part -what it really was, here banks make bad loans and make commissions and go home, then dump them off[sell] as structured vehicles
believe me no one needs to "convince" people to be greedy
just need proper oversite to keep everyone "in line"[honest]
the oversite here is profit/loss,
sorry they bought bad insurance, needed to do due diligence or you get hit with a loss
so you take away the loss function[bailout] and
boom, here we are
Posted By: r3volt
Date: 2008-11-26 16:13:37
Hey, bottom line is that I am on time with my home and car payments. I am not asking the government for anything but to stop taking what I earn for the programs that I have voice opposition for. The reality of this world is that these corporation that are asking for government help right now put themselves into this situation by their own actions.
While the temptation was great to order a McMansion with HELOC fries beyond my means I still ONLY BORROWED WHAT I COULD AFFORD.
Oversite would come in the form of fraud litigation at the local level. Just remember Enron. Many people were defrauded out of their retirement by a company. The State of Texas held Enron and its responsible parties liable. No need for the Federal Government there. The state of New York should be investigating fraud of these investment firms.
I am not asking for mortgage help. I am not asking for additional credit line. In fact, I wish not to partake in social security. I don't mind if I have to pay for my own healthcare coverage too. I am not asking the government to feed me or supplement my children's daycare. As of today I have never had to use unemployment. (Insert your "You will be fired because you are a failure or other name calling/insult here Master C)
I am asking for the federal government to stop the monetary inflationary policies that will directly lower the value of the few dollars that government has allowed me to keep.
I am upset about the confiscation of our time and efforts through taxation. If our dollars were really that important to the income of the government, they why can they print more than all of the income tax they collect for one year in the span of months? It doesn't make sense Ed/Master C. (You forgot the caps notation we have begun to enjoy from you).
I am not asking for anything other than the money I righfully earned. If I could keep all of my income, I would never have to ask for help from the government and I would be ok with that.