Wall Street Financial Crisis
The House of Representatives finally represented the people of the United States. The House voted down the bailout of the financial industry.
I hear about, if we do not bail out the financial institutions the common person is going to get hurt financial. Nobody has explained how the common person is going to get hurt by this market’s failure.
The most common statement is that people will lose their home. The question is what people will lose their home. I’ve been thinking about this. The most likely people are those who over extended themselves from the beginning. If you have been making your monthly payment, the risk is very low. In fact your mortgage becomes a good asset for the lending institution. If you have not been making your payments, should not that person pay the penalty? Lets say the bank recalls your loan by seizing your property. The question is what are they going to do with it? Are they going to sell it? Then how bad is the market? If there is enough money to buy all this property, then how bad is the market? I feel most institution will probably renegotiate your mortgage to salvage the asset. If the institution is so far in debt that they cannot handle renegotiation then what is the bailout going to do?
The second common statement is that the commercial banks will buy up these financial institutions and concentrate too much influence in a few hands. This tells me there is still some value in the assets of the failing institution. If your concern is that financial monopolies hat are going to be result, let the judicial department do their job on enforcing the monopoly laws.
The third common statement I hear is that banks have put a freeze on loans. Some economists are making statements that banks are no longer making loans to people. Maybe that is true. Think hard; banks only make money by making loans. Eventually they will go out of business if they did not make loans. The market for loans does not disappear. In the free market some company will try to satisfy this demand.
Another statement is that people will lose their savings. Money deposited in local banks has little chance of being lost if you keep your deposited money within the guidelines of FDIC. For those people who are at risk of losing their stock market investments, I say that is the risk you should have been aware of. You did not do yourself a favor by staying on top of these investments. Many people may lose their retirement benefits. I have no answer for this. These benefits may ride out the current crisis if they are not invested in the financial institutions. For the future we should be aware where the funds are invested.
Job lost is a heavy topic. I saw one economist make the statement, with the freeze, banks will not loan money to companies. My questions is why would banks hurt their only reliable source of income in this market to begin with. No bank will survive without lending money at an interest. My thoughts are that maybe interest rates for viable companies may go lower as banks demand for outlets for their funds. Viable companies may be able to get more lucrative. If there are enough viable companies then we are probably in a more serious crisis and need a more thought out plan.
My final thought is the foreign market. The United States is still one of the strongest markets in the world. Will the global market let the United States market collapse? If they do what happens to there home market. Can Japan, Korea, China or any other country survive without the US market? Will other companies allow our market to collapse? Where would these companies sell their product? All intriguing thoughts which may open a new topic about buying habits.
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