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CBS's Katie Couric asked Republican Vice-Presidential nominee Gov. Sarah Palin whether there could be another Great Depression if Congress doesn't approve the $700 billion bailout plan. Gov. Palin's response:
Unfortunately, that is the road that America may find itself on. Not necessarily this as it's been proposed has to pass or we're gonna find ourselves in another Great Depression. But there has got to be action taken, bipartisan effort -- Congress not pointing fingers at this point at-- at one another but-- finding the solution to this -- taking action, and being serious about the reforms on Wall Street that are needed. [Governor Sarah Palin, 2008.09.24]
Ooh, ya, maybe it's comin'....
O.K., I had my doubts, but now I'm convinced. There's no Depression coming. There's no crisis. Congress could go home now, let the banks take a bath on mortgages, and we'll still be better off than if we saddle our kids with $700 billion of debt to bailout people who weren't ready to move up from Monopoly money.
CAH, I've been doing a bit on what could actually happen if we don't pass out this hand out and I've found two items:
ReplyDelete1. The real problem here is credit default swaps. They are essentially ways of betting on whether or not a financial institution's assets can satisfy their debts. If the financial institution cannot pay off loses the bet, they are in the hole for vast amouns of money. Think 10-100x 700 billion. These orgnaizations with be severly tanked.
2. The future possible problem that is trying to be headed off is financial liquidity. The mess here is that mortgages and other debts were consolidated into chunks and sold to the market at large. Unfortunatley, those who packaged the debts did so deviously and did not properly disclose the risk of each debt. These debt packages are normally rated and convey the level of risk to anyone that buys them. Right now the market is flooded with debts that have highly suspect ratings. The debt rating system is no longer able to accurately convey risk to potential buyers. THIS is the real future risk which could have 4-10 year impacts. Future debt buyers will most likely not be willing to purchase debts because they don't really know what they are per the rating.
So, will these two problems lead to a depression? Probably not. Will they cause serious impacts for many years? Yes.
Should we bail them out? My magic eight ball has never been very accurate, but so far the people in charge (ben bern..) have been wrong since day one. So I would advocate going in the exact opposite direction they preach.
Some might appreciate economist views:
ReplyDeletehttp://freakonomics.blogs.nytimes.com/2008/09/23/economists-on-the-bailout/
Cory, do you really believe that whatever Sarah Palin says must be the antipode of absolute truth? If so, I envy you, for your universe is far simpler than mine.
ReplyDeleteI'm watching this evolving saga with detached trepidation, because I don't have any idea of how to resolve it. I'm just glad I never fell for any of those stupid mortgage deals.
Comrade,
ReplyDeleteI'm against any bailout. Let the economy suffer the recession that we all know must come sometime.
Think of all of the good that will occur as a result. Just like $4 gas woke us up to the possibility of alternative energy, hard times will make us stronger.
Of course, we could be facing an unprecedented severe depression. If that is the case we will be jobless, cold and starving to death in two years time.
Only God knows the future.