The sky is falling chicken little, the sky is falling…
The financial crisis in our country has reached epic proportions.
This week, the Fed has planned a 700 billion dollar bank bail out to “save” the financial markets. In essence, what the plan does is remove bad mortgage debt from lenders so their books look clean and can continue lending out money.
The idea is, the Fed purchases these securities now, and will sell them later when things stabilize and be able to recoup all of the 700 billion dollar loan.
Now, this sounds like a good idea in theory, but will it work?
The problem is, it won’t help the people that are still struggling to make their mortgage payments…teetering on the edge of foreclosure for months.
There are two major problems that got us into this mess in the first place. Stupid people and greedy banks. The banks lent out money to people who could not afford to repay what they were borrowing. Everyone assumed that house prices would keep climbing at their record pace and they could just refinance their house later or tap into home equity loans to pay other bills.
What comes up, must go down. It’s just a natural correction phase. Stocks go up, then pull back. Same thing with housing. But prices went up too high, too fast. As Ron Paul recently said, and i’m paraphrasing, “illiquid assets are illiquid for a reason…their value is too high…the market is trying to correct itself.”
That means house prices will continue to fall, some expect another 15% as the market naturally corrects itself. Another 15% price drop will force additional millions into foreclosure. Will we have another bail out then?
Banks should be held responsible in some manner…they should have exercised better judgement in figuring out if people they were lending to would be able to repay the loan. People, in general, are too stupid to figure that out on their own.
What do we do now to stop the bleeding?
Who knows…is there anything we really can do? This economy will be depressed as long as gas prices are above $3/gallon. The high oil prices cause another problem that puts the economy into a tail spin. It costs more to freight goods to their destinations, which then get passed on to the end user. But, that is another story for another time.
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