Monday, September 29, 2008

The End of the World....Part 2

The talking heads and politicians have sternly warned us all that if the $2 trillion bailout bill doesn't pass the end will be here. I say bullshit to that. The argument goes something like this; if the bailout bill doesn't pass, banks stop lending. If banks stop lending the economy crashes and burns.

While some of what they're saying is true, most of it is false. They are right that SOME banks will stop lending. And some banks will fold. And the economy will take a hit. But it will not be some 1930s bank run induced financial collapse.

There are thousands of banks all over the country. Most did not go house loan crazy over the past few years. Most banks were prudent and didn't lend $700k to illegal aliens making $20K a year. And those banks for the most part are OK. Not all, but most. And these banks, with good balance sheets will continue to lend prudently.

On the other hand the giant banks that did most of the reckless lending will probably cease lending as they want to conserve every dime they have. But that is a good thing. Those loans should never have been made. And future loans like that shouldn't be made either. Having these banks fail is the best thing that can happen right now.

The bailout bill is not about preserving the credit markets. It's about preserving the credit markets for bad loans. Right now I am quite confident that I could walk into any car dealership and get a loan for a new car. Same with a mortgage. I have cash in the bank, high income and about as good a credit history as you can come by. The irony of course is I don't need a loan and hopefully never will need a loan again.

However Joe Shmoe idiot American living an lifestyle at 125% of his income does need a loan. He need a loan every day to survive. And you know what, if he has to give up the luxury SUV and the 90" plasma and the $500 jeans, it's not the end of the world. I read this article a while back that was stunning. It profiled this guy whose Amex credit limit was cut from $2500 to $2100. And he was complaining that he can't go out to dinner anymore. And this was written up as a justification for the bailout bill to get that credit limit right back up. Nowhere in the article was it even suggested that perhaps this guy should buy a cookbook and not have to rely on maxing out his Amex to get a meal.

Once again this is a situation where both the left and the right agree. The left wants more government spending no matter what. The right wants Wall St. to get as much money as possible. In the end the middle and upper middle class gets it straight in the ass...although this time they actually think they will benefit.

Enjoy the 60% tax rate coming to pay for all this.

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