To: Hugin
This is definitely an unfortunately situation for small businesses. Small businesses need short-term loans to conduct their day-to-day activities. It is ashame that this situation is affecting one of the basic foundations of our economy. Although this Congress is attempting to provide a solution to restore confidence to the banks so they will continue to provide the liquidity to small business, it is should not be done using our tax dollars.
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What will they use Monopoly money?
You are on to something. Note that the main effect of the ‘bailout’ bill to free up credit for small busnesses is NOT DEALT with by the bail out bill at all. The bailout bill dedicates the money to LONG TERM debt in the mortgage industry..it cannot be available for short term credit. Here is a link from
http://www.nakedcapitalism.com/2008/10/more-discussion-of-why-bailout-bill.html
After a lot of detail, the piece ends with this important comment: “When Paulson dumps out his 700 billion in treasuries it’s going to be at the short end. That will drive up rates for short-term treasuries. This will obviously draw even *more* deposits into the treasury MMs. That means even less in the commercial MMs and thus less working credit, the eventual commercial MM product. Hence Paulson’s billions remove working capital by competing for the deposits that could get used to make working capital loans. That 700 billion is going to go to fairly long-term mortgage securities. So Paulson’s billions divert credit from working capital to long-term mortgages - from where it’s most needed to where it’s most wasted.
Even if the giveaway adequately props up the banks, which I doubt, they still can’t make working capital loans, because the raw material they used (commercial MM deposits) will be desperately short.
I think it’s very telling that in two days of hearings and two weeks of discussion we have yet to see *any* detailed mechanism for how Paulson’s plan will increase the supply of, say, inventory loans. It’s not that every economist in the world is an idiot, it’s just not going to help. I think people have fallen into the fallacy that if it costs a lot it must be valuable. Paulson’s plan falls into the category of very expensive way to hurt ourselves.”
The bailout will not do a darn thing for mainstream US if these comments are correct. Hope that the House Republicans and smarter Democrats will not pass a defective bill that will make the current situation even worse.