[Vision2020] Why are we bailing out all these large corporations?

[Paul Rumelhart]

Thank you for the explanation, that makes perfect sense.  While I'm sure 
many bank presidents right now are shitting bricks, moving this country 
from one where almost everyone is in debt up to their eyeballs to one 
where people save their money and buy only what they really need or want 
seems like a good thing.  Sure, you're not going to save for thirty 
years and then buy a house, but if the pendulum swings away from the 
side it just smacked into, then maybe our economy will eventually become 
stronger after the banks (and people) riding the bleeding edge crash and 
burn spectacularly.

Banks will have to move from borrow short and lend long to borrow long 
and lend short for a while in order to survive.  That means they'll 
raise the interest rates on savings accounts, and require your first 
born son as collateral when buying an ATV.  Perhaps a balance will be 
struck somewhere.  The only difference will be that not everybody has as 
much useless crap as they currently do.

It's only common sense to realize that when *everyone* is in debt, the 
system's going to break soon.

Paul

Andreas Schou wrote:
> On Wed, Sep 24, 2008 at 7:43 AM, Paul Rumelhart <godshatter at yahoo.com> wrote:
>   
>> Andreas,
>>
>> What are the consequences of doing nothing that I hear mentioned a lot in
>> passing but which are never laid out?  Will we really take down our economy
>> and start harming the global economy if we don't do something?
>>     
>
> What they're worried about is a complete lockdown of banks' ability to
> extend short-term credit, followed by a lockdown of the banks' ability
> to extend long-term credit. Everyone wants to gather as much cash and
> T-bills (which are as good as cash) as possible; everyone wants to
> sell risky assets. No one wants to borrow; no one wants to lend.
>
> This freezes up the entire credit system, and probably, incidentally,
> kills some banks, because banks have a tendency to borrow short and
> lend long. If they can't roll over their loans, they grind to a halt.
>
> The credit freeze is way worse than it sounds. The economy largely
> operates in a prospective rather than a retrospective basis: people
> buy things with chunks of money and then pay in installments, rather
> than build up a chunk of money in installments and then pay all at
> once. This makes a lot of sense for large assets like cars,
> refrigerators, houses, et misc: it allows people to make gainful use
> of the asset, and thus cause the asset to produce value, before they
> otherwise would have been able to. Without access to credit, things
> like cars and houses don't get bought, because people just can't buy
> them in cash. Which means that the sectors producing and selling them
> take a hit.
>
> I'm unconvinced, given that Warren Buffet is throwing five billion
> dollars at a financial services company, that it's going to be as bad
> as all that*. But that's the theory.
>
> -- ACS
>
> * Of course, the cynic in me thinks that Buffet may just be taking his
> place at the federal trough. But that seems like a risky bet, given
> that the Bernanke/Paulson proposal appears to be DOA.
>
>