Looks like Bank of America needs more money to save Merril Lynch. My guess is we will see many banks coming back for more money so that they can continue making bad investments and loaning money to people who have no prospect of repaying the loan. I don’t know the exact figure but I would guess that a large percentage of the typical consumers income is going to debt servicing, that is the money paid in interest late fees and overlimit fees, all the things that made credit card companies profitable for many years. I dont get why no one is talking about the failure of our credit based economy. The solution is not to give people more credit, that just creates a bigger hole down the road.
A better sollution is to figure out a way to get people out of debt, perhaps make it easier and less stigmatizing to go bancrupt on credit cards, or start forgiving student loans; maybe even allow people to refininance their home at its current value and forgive the extra debt. If people didn’t have to spend so much of their income on debt service they might actually spend more money on consumer goods, which people keepsaying will jump start the economy. The problem right now is that the economic plan seems to entail people getting easy credit so that they can buy more stuff and in a year or so we will be right back in the same place, just with a larger deficit. If consumer debt was forgiven people might be able to get back to buying stuff but they would not be using borrowed money to do it, which might lead to a sustainable recovery.
The bailout should focus on the consumer and how to get the average borrower to a functional level. Obviously the people who borrowed more money than they could hope to repay are not without blame in this mess, but a bailout that encourages banks to keep giving them more money is crazy.
UPDATE: Looks like somebody said this much better than I did
Definitely not about the loans they’ve made since receiving TARP funds…it’s about the loans they made over the past 20 years, and the fact that once the credit market went dead, all of it ended up on the balance sheet. Merrill died because of it, and Citi was going to die because of it. The capital injections do nothing but prevent bankruptcy, as all of those assets have to be accounted for based on what the market values them at. As the economy gets worse, those holdings continue to lose value. It’s a self-reinforcing cycle as far as that goes.
You’re right on when it comes to the need for actual people to get some dough, but that dough has to be produced organically…meaning, they have to get it in exchange for work being done. Giving a few hundred billion dollars to the population at this point is useless, as once the money is spent, it’s gone.
It might be time to simply nationalize the big banks and then turn them private again with clean balance sheets and regulations in place to make sure this never happens again. Take the stimulus money and spend it in exchange for a day’s work…the problem is there isn’t enough work to be done at the moment.
It’s clearly a problem that can be solved, but at this point the chances aren’t great. Politicians who deregulated and caused this may also be the ones who prevent distribution of the needed medicine.
Student loan forgiveness would be one way to increase disposoble income without rewarding poor choices, and going forward perhaps put rules in place to make higher education more affordable.
As for forgiving credit card debt at this point many people deep in debt had little choice and for whatever reason they got caught be the teaser rates or lost thier jobs so it would seem they could use some relief as well. The other part of the equation is a lot of people wont be able to pay their credit cards anyway so banks will have to be paid for those debts if their is a bailout anyway, why not at least help taxpayers as well as corporations.
Wouldn’t student loan forgiveness go disproportionately to women, whites, and asians (thereby disenfranchising men, blacks, and latinos)? Sounds like something Courtney Love would be into …
Allowing people to write off a percentage of student loan payments on an annual basis is a better way to do it. You have to create an incentive in exchange for money…job or tax writeoff…
Even just forgiving the interest and lowering the payments on certain forms of debt might go a long way towards increasing disposable income. Right now it seems like most of the GDP of the US is dedicated to debt service.