Grapes of Wrath
The current version of the $700 billion bailout bill will allow the Treasury to buy some of the worthless assets from the banks and other financial institutions. This might provide a slight upwards bump in the stock markets, but it won’t last. Of course to help out the U.S. Government has to pay more for these worthless securities than they could be sold for on the open market. And if the government negotiates a really good price, say ten cents on the dollar, this will make banks even more precarious than they are now.
This is essentially money just flushed down the toilet.
Unfortunately housing prices are still much too high. Economists say that before this recession began, housing prices on average were 60% overvalued. Until the housing market declines a good bit more, there really is very little that the U.S. Congress can do to help out.
Probably housing prices will need to decline another 20% before things begin to stabilize. So if the value of your house has already declined by 15% to 20%, and you already owe more on your mortgage (plus second mortgage?) than your house is worth, this is going to get substantially worse in the next few years. And there isn’t anything that the Federal Reserve or the Treasury Department can do about it.
Of course the government does need to re-institute many of the laws and regulations that the Bush administration has invalidated. For example the percent of capital required for banks and other similar financial institutions versus borrowed money needs to be brought back into line with where it was before these out-of-control drunken sailors began eliminating all this pesky “government interference.”
These people have run the finances of the U.S. Government and regulation of the private banks like a teenager with his first credit card. No job to pay the money back with. Frequently drunk or high, with the consequent hangovers the next day. No financial discipline at all.
The sobering news is that this is not just another standard recession, where everything gets better in 18 to 24 months.
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The damage that the Deregulation Fanatics have done to the American economy is substantial. The current situation is FAR WORSE than anything we have seen in the last 50 years. Many sober economists now say it very likely will take five to ten years before this all settles out. And during that time many people are going to lose their jobs and lose their houses. Marriages will fall apart. Many people will have their cars repossessed. And unfortunately the drunken Bush fanatics have done everything they can to reduce any safety net that the government might have provided to these people.
Now is probably a good time to re-read the 1939 novel by John Steinbeck called The Grapes of Wrath.
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