The Financial World

I have suspected for years that some dreadful retribution would be imposed upon us because of, the frivolous fashion in which so many have accumulated debt, speculation as to how people might profit from escalating real estate values, the unprincipled way in which lenders have taken advantage of them. I never, in my wildest dreams, speculated that we might face financial meltdown, an Armageddon of the world monetary system. I believe that this is what the people in power confront, and I am unimpressed by much of the response. It appears to me that some, in a position to know what was developing, were either not on top of their jobs, or knew that their superiors would either, not listen to them, or would suggest that they consider resigning. However, we are here, and what is happening?

President Bush authorised his Treasury Secretary to take the necessary steps for the United States to provide 700 billion dollars in financing to relieve the pressures which are threatening the American economy. I believe he was reluctant to take this step, and I think his initial thought was that the Secretary should have complete discretion on how the funds were used. The funds were authorised, but Congress influenced the basis under which they would be disbursed.

While America has been addressing its financial situation, others have also been struggling with similar problems. The British Prime Minister, Gordon Brown, decided one way to tackle the problem was for governments to introduce additional capital to banks which were in difficulty, and Britain moved in that direction. The European Union decided the British initiative was good, and its members adopted it. America has now followed suit.

One of the problems in America is that, with less than 300 billion of the original 700 billion committed, everybody and his brother is trying to get to the feeding trough before the rest of the funds are allocated. If enhancing the banks' capital is a good idea, what about us? One candidate being the automobile companies.

There was an editorial in the New York Times last Wednesday on a hearing in the House of Representatives the previous day about the expenditure of the $700 billion. The Treasury Secretary insisted that the funds could not be used to prevent individual mortgage foreclosures, an opinion Representative Barney Frank demonstrated was untrue. Ms. Bair, the chairwoman of the Federal Deposit Insurance Corporation, apparently demonstrated that, if an investment of $24 billion was made in protecting banks from part of any further loss from renegotiating mortgage payment terms and if the result was to lessen the fall in real estate values by just 3%, an additional $40 billion would be available to individual consumers. Where is the sense in advancing $25 billion to automobile companies who have been in denial since foreign car makers started making substantial inroads into their domestic markets 40 years ago, while we refuse to help, indirectly, ordinary citizens who are fighting to save their homes?