Wednesday, October 01, 2008

It is rather astonishing to follow the saga of the bailout. It seems obvious that it is a bad deal. On two fronts.
1) The national debt is increased which will increase the proportion of tax money to service it

The national debt is an accumulation of overspendings on various government budgets. It is now $10,028,532,133,629 which is $32,898 each. And now:
700,000,000,000 is being added to it. And the tax payer has to pay the interest on the loan.
This is a 7% increase in one day!

Usually when you get a loan, there is is something to back it up, such as a house or a car or whatever. This loan is backed up only by a promise to pay by the citizens of the USA thanks to the elected congressmen. But with a recession or depression on the way, the increase in debt servicing will require a cut in Federal services. Take your pick... Social services? Border Patrol, Homeland services? etc

2) The money is arriving too high up the food chain.

Supposedly the problem is in the freeing up/unblocking of the facility to supply money to the main street businesses. Banks are supposedly refusing to lend money to people who have FICO scores of 700 or more. This is the killer. The 700 billion needs to be placed in an independent bank that is tasked to supply main street businesses. Or allow mortgages to be re-financed. But apparently the funds are destined to buy the derivatives based on the mortgages.

I have in mind an attempt by Maggie Thatcher to save the British Pound by throwing a bunch of money at the exchange market and it was simply swallowed up with no effect at all on the value of the British Pound on the market. Perhaps there are parallels here, and perhaps not. But there was no time to fully study the situation and there was a stampede to implement the forlorn hope.

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