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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
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.
companies would not be able to refinance their scheduled “balloon”
loans for some of their debt and seasonal cash-flow needs.
investment would stop, and large existing projects would stop when
businesses could not draw down on their lines of credit.
depressed housing and construction segment of our economy would
become even more depressed.
and small would begin to lay off workers, which would cause
unemployment to go up significantly, and consumer spending to go
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
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.
© 2008 North Star
Writers Group. May not be republished without permission.
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