More on the bailout - a different point of view

September 30, 2008

One of the blogs I like and respect, Dr Housing Bubble, has a different view on the bailout.

This bill was a pathetic attempt at smuggling money to Wall Street from Main Street although it was under the guise as help for the common person. Even with all the new modifications in the 110 page updated bill there were so many loopholes, that it was only a matter of days before Wall Street gamed the system. “Some CEO compensation” or the lack of clarity in how assets would be priced were main sticking points.

I consider myself to be reasonable, and that’s why I like reading different points of views (that are able to “reasonably” argue their points).

I do understand Dr Housing Bubble’s point of view and why the main population is against the bailout.

I also agree that if the mainstream media is pushing for this bailout, then that itself should be considered a red flag. The mainstream media has been wrong over and over in regards to our economy, so why trust them now?

I’m not trusting them. I’m reading blogs from writers like John Mauldin.

We’re not talking about car loans or new home mortgages. Banks still have money to make these small loans, especially if they are for prime people. That’s how they make money. But we’re not talking about them. We’re talking about insolvable assets.

Let’s say I have a friend that has $10,000. This friend lent that money to 10 people @ $1,000 each for a good interest rate. Historically, these loans are good, so I decide to purchase these loans from him.

So now I have 10 I.O.U.s that could possibly return the $10k with a nice profit. Normally, I would be able to resell these I.O.U.s if I needed the cash right away for some reason.

However, a crisis in the market hits and no one is buying I.O.U.s anymore, even if they are good, because they just don’t trust anyone.

Now, I’m stuck with good I.O.U.s that I can’t sell.Now add 7 zeroes to my example.

It’s a simple and most likely flawed explanation, but it illustrates my point.

Capitalism is driven by debt. What would of capitalism if small entrenenours weren’t able to loan money and start their first restaurant or their first home based business?

I don’t disagree that the plan might have had loopholes. Honestly, I didn’t check all of the plan’s details, but overall, I do think we need a plan.

Let’s stop calling it a bailout plan. Let’s call it a Economy Stabilization Plan. And that’s something that we really need right now.

Posted in Finances