$700B Bail out to take all bad mortgages
Increase the FDIC and NUCA Deposit insurance
Injecting $250B to banks by buying their Shares Are you thinking like me, “What in the hell this all this means to me and country?”. There are Unknows to a common consumer like you and me. I know it is frustrating as we all are not MBA’s and Financial anlayst to figure them out. I hear you loud and clear because I can’t even understand this more complicated and convoluted financial jorgans after reading books and research over the internet. In simple terminology, it is all different colors of financial helps given to our US economy to boost the confidence level of the investors. To explain the details to you all, I was searching for simple terms and found help from one of my favorite financial wiz lady Manisha Thakur. She is an author of best selling book titled ONMYOWNFEET. I am going to use her explaination with her permission molding with my version of the story.
What’s happened to US Economy?
For easy understanding, let us use the simple analogy of current financial market to the overweight mid-aged man who is having heart problem. Economy is now in a critical situation like this patient. He has heart attack and doctors are trying to revive him back by giving periodic shocks. He is alive and well for a day or two but he goes back again to a bad situation. Doctors been trying hard with different treatment everyday. Similarly, Treasury secretary Paulson and Fed Charman Ben Bernake are working like doctors to revive back the economy with their best tools and arsnels. Those colorful financial packages I mentioned above are few of their thoughtful treatments to bring back the economy(patient) to a somewhat steady state or atleast make him live without going to a worse situation.
Is the economy going off the cliff?
It might seem that way with all news coming out everyday. It is actually very close to under recession. Many say its already in recession. But the odds are pretty darn good economy (Patient) is going to pull through fine like it in 1980’s and other times. No one knows for sure. It is a cycle and it got worse due to the subprime mortgage crisis and credit crunch. Important thing is it going to take time and extended period of physical therapy like streamlining the lending process, other financial to-do’s to get back in shape as a nation.
What happened to the economy?
Patient needs blood to circulate freely to live, economic version of blood is credit. It is good credit, not credit we talk in credit cards. Credit you loan to business and bank. Small business owner needs credit to buy more build business, put inventory, hire more employee. Consumer also needs credit to buy an house who can really afford. So during the last past months, the credit has frozen /seized like clogged artery in the patient. If the credit drys or banks don’t have money to lend or loan to small business, it will be the end of small businesses. They won’t be able to buy things for their business, hire people and can’t fund their business, which is bad? If small business is the back of bone of any economy especially US. If they can’t run their business efficiently, it will shake up the foundation of the economy and put it great depression.
What is being done to fix it?
They are trying to free up the money or feed in more money in to the economy to get the credit flowing like the blood flowing to the arteries. Government is doing to figure out on how do you make the blood flowing smoothly in the patient (economy) again. Like making the credit available to banks to flow into the economy. They are doing that in different ways like bail outs by taking over debts, injecting money by buying their shares and much more. Its all steps to put more money in the economy. But thats not the only solution. Investors has to gain confidence back again on the economy and start to invest on the companies. Government can’t do that by any means. So it is going to take its own for that to happen.
Why is this artery got clogged or happened?
Obviously with the Patient, there are typical reasons like Genetics, poor diet, no exercise caused his health problem. In essence to the economy, poor diet or no exercise can be related to faltry lending practices and going away with following basics. Housing market is the major culprit and root cause to start it all out. It was 15 years ago when government really pushed home ownership and made American dream real by lending money thru banks. On the way, greed took over and many banks and financial institutions lended money to people who can’t even afford those kinda of houses making the artery to gummed it. This subprime mortgage crisis adding lot of debt to the banks like fat in the arteries making it to clog. As you all know, clogged artery can’t function property as the blood will eventually stop going to the heart and create heart attacks. Similar thing happened, banks stop lending to other banks and businesses because of the debts bursting the bubble.
Whom to blame?
There are many people to be blamed starting from government who started campaign pushing the banks to lend freely, bank and financial institutions which lended without any proper papers and also the tax payers who got loans knowing they can’t afford with lot of risk. So it is easy point fingers but you have to very careful when you pointing fingers. When you are pointing a finger, 3 fingers points back to you..
Look in the mirror, Are you at a home which you can’t really afford it and struggling with it? Ask for help with your lender who are not told by the Government to be flexible and easy on the home owners. They will work with you to reduce your interest rate and balances so you can start paying the loans instead of foreclosing it. Start saving atleast 15% of income for tomorrow and future, pay credit card bills fully every month. Credit card debt is next in line crutching the banks after home debts.
Collectively we can all do things to make the nation stand up back healthy as a strong one. It will also help other countries who got hit by this financial tsunami to boost their confidence level.