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September 29, 2008
Don’t Celebrate Yet:
Many Problems Remain Even With the ‘Deal’
Before the cheers go up for a so-called “Deal reached for Wall Street
Bailout” as reported by several sources, here are some sobering
The housing market
A lot of bad loans
Consumers have too
The United States
has too much debt.
Some banks are
operating on the edge.
Some businesses may
not be able to make payroll.
Some more people
will lose their jobs.
The public deserves
a lot of answers.
The ripple effect of the success of the “deal” will not be known for
years. Just as the 1989 government bailout of the savings-and loan
industry took about five years to help stabilize the markets.
contrast to the potentially disastrous ripple effect down from
Wall Street to Main Street if nothing had been done, the success of the
“deal” will depend on the ripple effect up from Main Street back
to Wall Street.
When businesses are able to make payroll without any more layoffs, and
they are able to borrow money for short-term cash flow needs, and their
business is picking up when consumers can afford to spend again, and
people are buying houses again, then maybe we can take a deep breath.
do know that there will be some economic pain at all levels while the
entire free market system tries to recalibrate itself. But in order for
the economic recovery to last, consumers and the federal government have
got to stop spending beyond their means.
Raising taxes and then offering some watered down stimulus checks to
people will not help sustain the recovery process. In fact, it would
make things worse. Let people keep their money in the first place, and
they will decide when and how to spend it.
The biggest issue that must be addressed is failed accountability by
Congress, some CEOs and some boards of directors. I am less concerned
about CEO compensation than I am about CEO performance and board
accountability to its shareholders. And now with the “deal”, those
companies and their boards who choose to participate are also
accountable to the taxpayers.
even bigger concern is Congress’s failed accountability with the
oversight tools they already have. Before we rush to give them another
sledge hammer on businesses, we need to know why they allowed Fannie Mae
and Freddie Mac to implode before the administration had to step in.
After all, Fannie Mae and Freddie Mac is where the ripple effect started
to unravel. Buying pre-packaged bad loans with “lipstick” was not just
greed. It was also dishonest on the part of the sellers and the buyers.
The public deserves a lot of answers before we can celebrate.
© 2008 North Star
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