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September 28, 2008

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I generally ignore your religious posts, as I tend to avoid organized religion like the plague, but this one struck me as exceptionally off. The entire financial collapse is due to the fact that the financial system is not religiously based? And the only way to fix it is to turn America into a theocracy? Seriously?

Hey FMF, what's the value of a college degree going to be when the US economy implodes?

My town is already loaded with college-educated baristas, so what's next? PhD baristas?

Kaitlyn,

Interesting that a book that is over 2000 years old contains such wisdom. Don't you agree?


Terry,

I have heard the same thing for many years. It is a fact that college educated people earn significantly more than those that do not have an education. Despite what you might see in your small circle, the world is filled with college educated people that have landed their jobs as a result of their education.

This seems to be more of a commentery / observation on the situation ("I told you so"). This weekend i heard a media commentatory ask "So, if the curtains are on fire, do you reprimand the child or do you put the fire out? How would you fix the problem?"

First, our economic stress is rooted in people (tax payers) borrowing money (in the form of mortgages) & NOT paying it back. If they would pay it back, then there would be NO problem. No one was forced to borrow the funds – it's about personal responsibility. Yes, Wall Street’s leveraging of that debt exacerbated the issue – but still, if payments are made, there are no defaults.

As the default and foreclosure rate on these mortgages increased, the value of the securities declined. As the values declined, the balance sheet of the financial institutions (Banks, Brokerage Houses, Insurance Companies) that bought them deteriorated. The demand for these securities declined and ultimately evaporated, thus causing a liquidity problem for the financial institutions and a credit crisis for American consumers and small businesses.

In the immediate term, we must address the credit and liquidity crisis. The Treasury has proposed using up to $700 billion dollars to purchase, at a discount, these mortgage-backed securities. This would provide liquidity to the financial institutions (Banks, Insurance Companies) and improve their balance sheets. The important question is this: "Is the taxpayer protected?" If the Treasury properly discounts the securities to, say, 50 or 60 cents on the dollar, and holds the securities to maturity there should be little or no cost to the Treasury / tax payers. More importantly, investors will return to the market and will compete with the Treasury to buy these discounted securities and the market will be reestablished.

The term "bailout" has been used a lot. Not a dollar of the $700 billion will go to the brokers who created the securities. Instead, they will go to the investors (Banks, Insurance Companies) who bought them, and then only after they take a significant discount or loss. Properly executed, the Treasury & the Federal Reserve believe this proposal will restore liquidity to the credit markets and return confidence in the financial system.

This is not a bailout of wall street. It’s a “funding” of the US Economy.
More than likely, according to Warren Buffett, the government will make money on this transaction.

Credit is the lifeblood of any economy. If Credit doesn’t flow, economy stops, people loose jobs, less tax revenue…you can see where this goes.

Is it right or wrong / Socialism or Capitalism? Who cares right now. First things first, stabilize the situation NOW, point fingers & regulate later. More than likely it’s a case of existing regulation needing to be enforced (and the Fed getting larger as its responsibility for monitoring increases).

I am getting more and more fed up with Wall Street: The financial markets at Wall Street in combination with the global marketplaces have become such an interwoven, giant, monolithic, extremely complex and as recent history shows, extremely fragile marketplace. Often even financial experts lack insight and comprehensive understanding of all the interdependencies, so it is no surprise that a increasing number of private investors are getting more and more at unease with the lack of transparency. In my opinion we need to go back to basics: Move the money from this macroscopic, behemoth and abusive market back into small businesses on main street. Brick and mortar usinesses with nuts and bolts, that are in expansion mode. It is transparent, easy to understand, you see your money at work, and often, your investment will be secured by the assets of the business. In case your money sits in a 401k, don't think your hands are tied, you can roll it over to a self directed IRA. There are several plan adminstrators out there who allow you to invest into a multitude of assets, way beyond the classic choices of mutual funds.

I'd characterize this back to basics philosophy as Micro Economic Investing.

"Europeans are mocking the American financial system"

Not anymore, 4 major European Banks were nationalized today.

MHudgins, you are correct, the bailout was the wrong term it was a refunding of US economy, unfortunately things are going to get much much worse. I pity the next President.

In my opinion, a government save/bailout/funding plan is NOT the answer to solve this crisis, and bravo to the House for not allowing this plan to pass. The idea of supplying "corporate welfare" for these financial institutions is a joke (regardless of whether it's a discounted purchase that may or may not financially recoup itself later on).

There are other alternatives to solve this crisis that don't burden severely burden the American tax payer (the way the current plan does). But, let's hope these alternatives will be considered quickly before it gets any worse...oh, and that out national leaders seek God's wisdom in this process above anything else.

I read Larry Burkett's The Coming Economic Earthquake recently, and it does indeed seem that he accurately captured the direction our country's economy has been going in.

An earlier commenter was looking for more information regarding a way out of this crisis. At least one is suggested in the article, based on the biblical principle that debt is dangerous and is to be used sparingly (note the Proverbs passage quoted in the article: "the borrower is servant to the lender").

If you accept this principle then the first step towards a long-term solution is to begin paying down debt. This includes personal debt as discussed so often here on FMF.

It also includes our collective debt as a country. We can do something about the latter through our voting and contact with our elected representatives. Telling our elected representatives that their constituents want the government to cut spending, and use the resulting savings to not only reduce the deficit, but eliminate it, allowing the country to being the process of paying down our $9,000,000,000,000 (and rising) national debt. Keep in mind that our representatives will only do this if we make it clear that this takes priority over many of the services people are clamoring for the government to provide. Sadly, too many people aren't aware of the need or importance of reducing our national debt, and so don't even raise the issue with their representatives in Washington.

Regardless of the short term actions taken (bailout vs. no bailout), the only long term solution is to deal with the root problem: We as a nation have taken on too much debt both collectively and individually in many cases.

For those of you seeing this from a Christian perspective as I do, I would propose (as I believe Larry Burkett did) that there's a deeper root cause behind the debt problem. Specifically, that the people of our country have largely moved away from using Christianity and biblical principles as its guiding forces. This brought about a variety of societal problems, one of which is this willingness to take on more debt than is prudent.

Respectfully, Mike H.

I read Larry's book about twenty years ago. I have kept telling everyone I know that eventually Larry's prophetic insight would be proven correct. To me its amazing that we have been able to kick the can down the road this long without seeing his words come to pass--it just goes to show how manipulated the markets and the economy have become so that the standard cause and effect of economics seemingly don't apply. Eventually God is going to bring judgment upon us as a nation for the greed, lying and corruption that is inherent in the fiat money system created by the central bankers that hoodwinked the Congress 99 years ago.

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