Thoughts on the economic disaster
Why should we care about the crisis on Wall Street?
There are a couple of angles here. One is that the current troubles are beating the heck out of the values of our retirement funds and savings for our kids' education. That's ugly news, but it's not unexpected. Stock prices have been inflated for a long time now, and it was just a matter of time before they started coming down to where they belong.
The other bad side to all of this is that if no one can get a loan from a bank -- for education, for housing, or to run their business -- people are going to start losing their jobs. Except for undertakers, seemingly no one would be immune from unemployment if things got bad enough. If enough folks wind up out of work, the depressing effect on the economy would cascade across many companies and industries. We could all wind up on bread lines together.
Thus, the ability of creditworthy people to take out loans on reasonable terms seems to be a key value, if not the key value, here. But banks are hoarding cash and won't lend it out, even to each other. Witness the announcement by Legacy Emanuel Hospital that it's pulling the plug on a building project that it's already started, because it can't get a loan to finance the construction. What can the government do to get the sources of debt capital to loosen up?
One step that's being discussed is to bolster the federal deposit insurance system. With greater maximum insurance coverage over any account, depositors would presumably be less likely to withdraw savings from banks and use them to buy Treasury bonds. With less of a threat of a run on the banks, the banks might be more willing to lend out cash.
The key word there being "might." Who knows what's motivating the world's "funding sources" these days, other than fear? And unless the object of their fear can be correctly identified, it can't be adequately addressed. Cranking up the maximum bank balance that's insured may help ease the credit crunch a little, but probably not much.
Here's a different idea that we've been mulling over for the last couple of days: If the banks won't stop hoarding cash, it may be time for the government to step in and do the banks' jobs for them. For $700 billion, why doesn't the federal government just start a direct loan program, making loans to worthy homebuyers, students, and businesses?
Of course it would involve a new government bureaucracy; of course the loan criteria would have to be a lot stricter than the laughable "standards" that have prevailed in the lending game in recent years; and of course establishment of such a program would violate the Republican Party's free market catechism. But if these are really such desperate times, then radical action is needed.
Let's not hand Paulson and Bush our kids' future so that they can give it away to the Masters of the Universe. Let's take the credit crunch by the horns, and not filter the solution through the greedy hands that have wrecked the economy. The top bureaucrat running the program could make around $200,000 a year, instead of $20 million.