Herman

Cain

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September 22, 2008

Wall Street and the Disastrous Main Street Ripple Effect That Could Have Been

The nation’s financial system has a severe migraine headache. We can take our $700 billion in aspirin now, or wait for a $700 trillion surgery if the economy tanks.

The first option might prevent an economic recession. The second option would put us in a depression due to the ripple effect of doing nothing.

There is plenty of blame to go around for the crisis on Wall Street, starting with the CEOs and directors of the wounded businesses, followed by failed congressional oversight that they have and did not use properly.

Admittedly, these Wall Street bailouts and “special loan arrangements” by the U.S. Treasury and the Federal Reserve seem inappropriate and excessive to the typical citizen, but if the Bush Administration had done nothing, Mike and Mary Mainstreet would have been outraged once the ripple effect knocked on their door.

Last week Russia suspended trading on all of its stock exchanges for several days. If Fannie Mae, Freddie Mac, Lehman Brothers, Merrill Lynch and AIG were all allowed to spiral into their own self-inflicted demise, trading on the U.S. stock exchanges could have been suspended.

Here is one man’s ripple effect scenario if stocks stop trading:

• Banks would freeze their lending operations until they could figure out the shock waves through the economy of a frozen stock market.

• Fortune 500 companies would not be able to refinance their scheduled “balloon” loans for some of their debt and seasonal cash-flow needs.

• New business investment would stop, and large existing projects would stop when businesses could not draw down on their lines of credit.

• An already depressed housing and construction segment of our economy would become even more depressed.

• Businesses large and small would begin to lay off workers, which would cause unemployment to go up significantly, and consumer spending to go down significantly.

·         Since business investment and consumer spending drives a combined 85 percent of the economy, Gross Domestic Product (GDP) would tank. The only unknown is how deep.

The mainstream media has done a good job of scaring the public about how serious our economic situation is, and a poor job of reporting the possible ripple effects if nothing is done.

Some people do not believe that such a scenario could happen. Yes it could. Ask Russia. Or study the history of how a series of bad decisions and indecisions led to the Great Depression of 1929. That time was no economic migraine headache with unemployment nearly 25 percent and the stock market losing over 80 percent of its market value.

President Bush and his administration will not get any credit from the mainstream media or the Democrats for their efforts to avoid a do-nothing scenario. But at this point in his administration, I don’t think President Bush cares who gets the credit. That attitude is good for America.

Let’s hope at this point the do-nothing, blame-game, lowest-rated Democratic-led Congress in history stays out of the way to give the billions in aspirin a chance to work.

At least a do-something president with the right attitude gives us a chance to avoid the worse case scenario.

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