Why the bailout is important for main street

  I have received many questions and commits in regards to the bailout.  I know that 700 billion is an incredible amount of money but with that said let’s look at this.

  The real problem here is liquidity.  That is to say that there is no liquid cash available to work with.  Yes it is hard to understand how that could be but here is the problem. 

  The banks made loans to people with as little as 0% down as late as early 2008.  These loans where also made at the height of the market in 2005.  As long as real estate values continued to rise then all was good. 

  Sometime in 2006 Real Estate values began to fall and some of these loans became upside down as the value of the home fell below the loan amount.  Thus becoming a bad paper loan by today’s standards. 

  Banks took chances on low income people and even took a chance on people with no down payment.  Some of these banks have now paid the ultimate price as they are now out of business.

  Now I am not even going to say that the banks had nothing to do with this mess as they did.  But as the credit crunch continues the banks are now hurting themselves.  With tighter loan guidelines there is a smaller pool of qualified buyers and simple supply and demand will drive down prices.  Which means more and more homes with upside down mortgages.

  The Fed’s require the banks to hold cash to secure these under preforming mortgage bonds.  As the values continue to fall then more and more cash is required to be held in reserves by the banks.  At some point most of the money will be held in reserve accounts and not available to lend for home loans to credit cards.

  I know that middle America pays the bills and I also know that middle America is the majority that will want new loans or credit that will soon not be available.

  The stock market clearly showed us what could happen as retirement fund managers where forced to remove large amounts of money and invest in secure investment vehicles. 

  This is middle America’s 401K, Cal-Pers, IRA’s, penions & retirement accounts money.  Yes people, understand that this is your retirement money.  These reduction in retirement funds is a real indicator as to how the credit crises will hurt us all.

  The golden parachute’s have been removed from the bailout plan and I think that is great.  Now let’s not put in hand outs to the bailout plan as all of the money will not be working correctly.

  Maybe the best thing to do would be to give the money to Fannie Mae and Freddie Mac as a loan.  This way these mortgage securities can be purchased off the banks books and this would free up cash for lending.

  If this is done then there needs to be some strings attached like no paid bonuses until the 700 billion is paid back.  Fannie Mae and Freddie Mac do not need lobbyist until the 700 billion is paid back. 

  We need real oversight on these two origination’s as Mr. Frank, Mr. Cox, Mr. Schumer nor Mr. Dodd said anything as this meltdown played out.  There is no excuses for this.  These men simply did not do their jobs. 

  The most important thing to keep in mind as the sun rises Thursday morning.  We need to keep all handouts out of the bailout bill.  If some Congress men are unable to do this then do not pass the bill.  This bill does not need to get raped & pillaged just because the financial system needs this bailout so badly.

It is time to take down the bird feeder.

 

Stay Tuned….

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