This morning CNN lead with “Stocks rallied Tuesday, with the Dow jumping 485 points on bets that Congress will pass a version of the government’s $700 billion package”. No they didn’t. Stocks rallied despite the bailouts defeat because investors got good deals on stock in companies that never should have been effected by this fear mongering administration.
Pundits supporting this bill don’t seem to realize this economy will keep running despite the “credit freeze” they explain as the end of the world. If banks aren’t making money off loans then tough patooty. I could care less. And so could many Americans and businesses that don’t want the debt they’re hocking anyway. To date I have not heard one solid explanation from all of these economic pundits or analysts detailing exactly how this “credit freeze” is going to hurt main street as badly as they hope to make you think. People won’t be able to run up credit cards this Christmas? Oh no, that will certainly be the end of us all. And what about all those companies they say need small business loans to make payroll? Say goodbye. If you can’t make payroll without a loan the going out of business sign needs to be out front. I certainly don’t want my children paying off this bailout so you can make payroll for your failing endeavor.
And then there’s the suggestion that giving banks this money will make them lend again. News flash: people don’t have money to pay off debt. They certainly don’t need any new debt they can’t pay. So most banks will get rid of dirty assets in the bailout and use this cushion to bolster their spread sheets to tantalize new wealthy investors towards their share value. A lot of us on Main Street don’t have these precious portfolios to worry about that your pinpointing as a concern for us. We just need bigger paychecks damn it.
Banks are starting to realize that without interest revenue they are little more than a storage vault for our money and even Anna, a banker who comments on this site, said they are a “necessary evil”. So far we’ve decided not to give this necessary evil a blank check and let them deal with their own demise. And believe it or not the bread lines have not started forming.
Where is your compassion? There are thousands of people right here in North Carolina who have lost their jobs as well as a good portion of their 401K due to the recent failure of Wachovia. Wachovia contributed a lot to our area, and we all will see the effects of their downfall. There is a lot more going on here than banks making bad loans to people who cannot afford to pay them back. Most of those people probably could afford to pay them back and had every intention of doing so until they were hit with high gas price, higher food prices, higher everything prices. Are you blaming that on the banks too?? Yes, within almost every business or organizations there will be a few bad apples whose greed and immorality bleeds through. But there are also people who are decent, who try to do what is right, who come to work every day and do a great job who are going to hurt with everything that is going on. You mention the businesses who have to borrow money. There are farmers out there who depend on loans every single year to grow their crops and then pay the loans back once the crops are harvested. It’s called cash flow. It is not because their business is failing and they can’t make payroll, or because they don’t know how to run a business. A credit freeze will definitely affect you and me in the long run, whether WE are the ones borrowing money or not!! It is not about running up credit cards at Christmas…it is so much more!
“There are farmers out there who depend on loans every single year to grow their crops and then pay the loans back once the crops are harvested. It’s called cash flow.”
No. That’s called credit flow. The US needs to take a lesson from China where you can’t give away a credit card. Businesses and people operating within their budgets and making accounts payable in full, when due, on established net terms is cash flow. Businesses can’t show outstanding debt as cash on hand, it’s illegal. They can use outstanding accounts payables to get loans which in my opinion (and many accountants) is a dumb thing to do.
We’re technically in the middle of this credit freeze according to Paulson and Bernanke. The company I work for is increasing our sales volume to both Wal-Mart and Carquest at a dramatic level and will increase revenue by at least $20 million this year. We have no open lines of credit.
The company I previously worked for however (the PODS competitor) operated purely on VC and had debt way past their eyeballs. It’s one of the many reason I left (the writing was on the wall). Know what – they lost their ass last month for operating way outside of their revenue stream and lost a major franchise investor. Hurricane Ike helped them some in Houston but not before they imposed a corporate hiring freeze and letting some people go.
That’s why I did my homework when changing jobs. I was interviewed, hired by and work for a CFO. I support all ERP and accounting systems and know inside and out the financial status of the company I work for. No surprises allowed. We’re buying product lines from failing competitors, with cash, so they can get out of their bad debt.
What we would see without this bill is the law of the jungle where the strong survive. Is the argument that in order to keep jobs we need to let the government own part of the financial services sector of our economy so that we can continue existing beyond our means? Businesses fail and we need to let them. Without a strong macro economy many that are not viable will continue to fail despite handing billions to banks.
Lets say banks do start lending again, who’s going to pay it back? You said yourself gas is high, food is high, wages are low (you may not have said that). So where’s the extra income or revenue to take on this extra debt we’re calling for in the economy? It doesn’t exist. The top down solution will not work. This problem can only be solved from the bottom up and that means job creation and wage increases.
Let me be very clear about about my forecast on this again: Giving $700 billion to a financial services sector that ran itself into the ground will not create jobs or give Americans the disposable income they need to get the engine running again. At the very best it is prolonging any demise until the failing macro economy is realized and acted upon.
My next post will be 10 things I made a list of this week that I think will allow people to start spending real money again.