The Economy Will Be Fine. No, I'm Being Serious.

While Erin Burnett maniacally proclaims "Argentina! Argentina" on CNBC, the world goes on. Kids go to school. Farmers farm. Credit unions and community banks take deposits and make loans. Despite the doomsayers, America will shake this event off like a bad case of fleas. The people shouting "Doom!" the loudest are the very ones who stand to benefit the most.

Hank Paulson is trying to bail out his former firm and his friends. Congress sees a blank check it can amend to death once passed, and pile on more pork to their friends. The presidential candidates use it as a talking point.

The American people know a bad deal when they see one, and that is why they peppered their representatives with calls, emails, and faxes protesting the bailout. This is how democracy works. The representatives voted the will of the people. It's a good thing. Americans quickly figured this bill out. Giving a bunch of assholes $700 billion to play with is suboptimal.

While no one noticed, the FDIC and the Fed added $630 billion in liquidity yesterday. The FDIC especially are acting like grownups. The Fed started all this by holding inflation adjusted interest rates below zero for years.

The banking system is built on faith. Faith that the counter-party to your transaction is able to meet their end of the deal. Right now, at large banking institutions, there is an absence of faith and therefore an absence of institutional credit. This happened before, in 1907. It will pass, panics always do. Remember Y2K? Meanwhile, smaller banks and credit unions are quietly doing their jobs, having made their decision to serve their customers rather than to try and be giant hedge funds (i.e. Merrill, AIG, Wachovia, JP Morgan, WaMu).

You had to know we were borrowing too much when commercials trumpeting "My credit score is 720!" were abundant. When your financial goal is a higher credit score (and therefore more borrowing ability) rather than living within your means and producing real goods, then a bad outcome is probable.

I was once married to a cancer doctor. Fannie/Freddie/Subprime were cancers that grew too large and ravaged the system. They needed to be excised, and now the entire system needs time to recover. It can't be rushed. It will take time. Everything will be fine. This is a $3 trillion event, but within a $15 trillion domestic economy, and a $55 trillion world economy. A large event to be sure, but not a deadly mistake.

A mistake would have been Congressional passage on Monday of the Federal Asshole Recovery Trust.

Comments

[aslinged]

You're right and wrong.

Right that the economy could recover from a 3T loss.

Wrong that anything other than a return to the gold standard and a massive shift in foreign policy spending will prevent this from happening again in a month or so. And then again.

And poof, before you know Obama has the presidency and there's no money to do anything.

Let's reconvene here in a month and see if that's accurate.

[ran6110]

Hi,

I agree with almost everything you've said but I did have a problem with this line:
>> The representatives voted the will of the people.

Sorry, when you look at the number of people that called, emailed or faxed their representatives you see most of them ignored the will of the people. I say reports that said calls were coming in to Congress at 100-200 to 1 against the bailout. If this is true the most of the members ignored the voters.

I have come to the conclusion that Congress no longer cares about the will of the people (except as a sound bite of course) and we should give some serious thought to removing the incumbents and changing the election laws.

[JohnnyBoyyy]

That's right, Ron, given time this too shall pass. When this all started last week I started reading all the articles I could find written by actual Economists and other REAL business people. I knew that the cowboy and Blinky McSame and their tribe of illiterate, influence peddling, war mongers had NO DAAAUUMM idea how to solve this embarassing mess.

Look at Warren Buffet - that's how funds gets into the market in an orderly fashion. AND, I can guarantee you that Mr. Buffet has "people" at Goldman Sachs keeping an eye on the store! AND, his ability to purchase additional GS stock at a fixed price AND the costs for using Mr. Buffet's money was agreed UPFRONT.

A similar plan for the use of OUR money could be handled by recruiting academic oriented economists that are true American Patriots to manage and oversee OUR NEWLY PURCHASED BANKS. We absolutely MUST NOT allow the past LOSER MANAGEMENT from OUR banks to remain unless we can verify that they GET IT!

Thanks, Ron,I feel better.

This is OUR Time - This is OUR Moment.

Obama/Biden '08/12!!!

[OutsideLookingIn]

The economy and the financial system are two very different things, and it is only the latter that is in crisis.

A business with honest, skilled workers, clever and innovative designers and engineers and a good product will always be able to sell more goods than they can produce at more than they cost to produce. That is economically sound. But when the firm's finance department is staffed by self-serving accountants with no knowledge of the real world, who think they are worth ten times more than the workers on the shop floor plus huge bonuses for just doing their jobs, and pour the firm's money into badly-researched, risky ventures or just gamble with it (because it isn't real money, after all) are a cancer in the firm that needs excising and healing. That's the job and responsibility of the managing director.

So with the US. The real workers who's labour, skill and innovation produce real goods for value give it a sound economy, dragged down by the incompetent greed of the financial department. And the managing director has spent the last eight years without ever leaving the party going on in there.