so why did Hoover get blamed for the Great Depression? until 1932 things were OK and it was just a recession. people could still get money from the bank. it was only in 1932 that the bank runs started and spread like wildfire and wiped out the banking system plunging the country into a depression.
We're not going to have bank runs with FDIC insurance. Nobody started pulling their deposits from WaMu, since they know the government will back them.
We may have to bulk up the FDIC fund, but that isn't hard or complicated.
It would seem like this could be reasonably easily (and convincingly) explained to Joe Blow. Some real world examples of the businesses right now that are having trouble getting financing would really help - fast food franchises, farmers, etc.and when businesses start laying people off by the thousands to conserve cash joe blow will be foaming at the mouth as to why the government didn't do anything to stop it
Ummm - this is the problem. When Main Street businesses can't obtain the credit they need for their day-to-day functioning - not for expansion, not for anything fancy, just the basic inventory, payroll, etc. - the businesses start to shut down. This snowballs as people get laid off, suppliers are not paid, etc. Turns into a depression. You do not want this.
Thus something has to be done to unfreeze credit to these companies.
Audrey
Really?
"WaMu became ``unsound'' after customers withdrew $16.7 billion since Sept. 16, the Office of Thrift Supervision said yesterday."
Bloomberg.com: Worldwide
The problem is that it becomes a snowball rolling downhill.Sure, but I'm not entirely convinced that this "credit freeze" is going to impact businesses in that way to a large degree.
There are plenty of banks that are running business as usual. Main Street businesses may have to switch banks, but I don't think that they are going to be unable to get credit at all, as long as they have very solid credit and collateral.
There are plenty of banks that are running business as usual. Main Street businesses may have to switch banks, but I don't think that they are going to be unable to get credit at all, as long as they have very solid credit and collateral.
Ok, but WaMu's been among the walking dead for months. There wasn't the kind of panicked withdrawls like before the Depression. And everyone is going to get their money.
I would be in favor of lifting the limits on FDIC insurance, though. The 100k limit seems a little archaic. I wonder how much of the 16.7 billion was in deposits over FDIC limits?
The problem is that it becomes a snowball rolling downhill.
A few banks tighten up their credit lines and a few businesses go under. A few creditors get stiffed.
In response, banks tighten a little bit more, and in turn that takes out a few more businesses. A few more creditors get stiffed.
Rinse, lather, repeat.
I believe it is this slow water torture -- drip, drip, drip -- which is constipating the credit market and, in fact, the housing market. As long as the belief persists that it's going to keep getting a little worse, and then a little worse, and then a little worse, people won't buy houses and skittish lenders with already low loss reserves won't lend.
In other words, there's a paralysis as long as entities conserve cash waiting for the other shoe to drop again and again and again. I believe that to really free up the seized market, participants -- home buyers, businesses, lenders, savers -- need to believe that all the shoes (or at least the vast majority of them) have dropped.
I suppose that's the disagreement at this point. How badly might the credit freeze impact corporate america and could it snowball.Sure, but I'm not entirely convinced that this "credit freeze" is going to impact businesses in that way to a large degree.
There are plenty of banks that are running business as usual. Main Street businesses may have to switch banks, but I don't think that they are going to be unable to get credit at all, as long as they have very solid credit and collateral.
If they don't, they probably shouldn't have been getting money in the first place.
That isn't the problem. Sure, there are some banks still plodding along as they always have. But those banks have to comply with regulatory capital ratio requirements so they cannot endlessly expand their balance sheets to accomodate all the demand that is out there for credit. Where is all this demand coming from? Partially from the banks that are hurting and frantically trying to shrink their balance sheets. But a lot of this demand is from the sudden withdrawal of capital market funded lenders that generaly are/were not banks ("shadow banking system"). Like it or not, the shadow banking system provided a huge amount of credit and now it is gone. The remaining healthy banks cannot replace all that supply on their own, at least not without large capital infusions. The capital infusions would be OK, except nobody wants to give banks capital any more, especially smaller institutions that might give a rat's patoot about Main Street businesses.
But I think you have already made up your mind, so this is probably a waste of my time.
So is this "program" going to solve the problem? I wonder, since none of the major players I have said it will. At best it might, but also may just prolong the agony.
I suppose that's the disagreement at this point. How badly might the credit freeze impact corporate america and could it snowball.
Very badly. It's not just banks that are shutting down but the plain vanilla bond market is too. Even Coca-cola had a difficult time pricing a new bond deal yesterday. And the oil company Anadarko issued bonds at spreads typically reserved for junk credits. I don't think people fully appreciate what is happening in the world of credit . . . or how much the US economy relies on it . . . or how badly they will miss it when its gone.
Where can I go to get info on that stuff? I'd be interested in seeing the terms of the two deals you mentioned.
Where can I go to get info on that stuff? I'd be interested in seeing the terms of the two deals you mentioned.
Brewer, so far most of this "purging" has had very little negative impact on Main Street. I'm not certain that letting things run their course will be disasterous.
People will still trust banks, since for the most part their failures are not going to affect depositors. WaMu's demise appears to have been seamless.
Credit has become harder to get, but that is probably a good thing long term. Credit can be a dangerous tool. Many people may be better off with it not being available.
Credit is still available to people who are solid risks. I'm pretty sure that I could walk into US Bank, or Wells Fargo and get all of the money that it would be prudent for them to lend to me.
I think that the people in banking see this as a much bigger problem than it is to the country as a whole.
I suspect it's not being spelled out for Joe Blow.
If Joe's employer is a capital-intensive business that relies on borrowed money to flourish, turning off the spigot of credit puts Joe out of a job.
If Joe has a 401K or IRA, he can look forward to watching his retirement feel farther and farther away as it shrivels in value.
If Joe has a pension, he can watch as his pension fund crashes in value, threatening its solvency -- and perhaps that of his previous employer.
If Joe is retired and on Social Security, he can worry about how a collapsing economy and massive job losses will allow SS to continue taking in enough payroll taxes to pay benefits.
Since the major risk right now is the seizing up of the credit markets with banks not willing to lend resulting in businesses not able to finance their operations.....
Why not have the Govt open a temporary line of short term credit to companies so they can continue to finance their operations. Just bypass the private financial system entirely while it self-destructs and/or is hoarding cash and unwilling to lend. It's probably easier to monitor the credit worthiness of business balance sheets than all the bizarre complex instruments used to package mortgage securities etc.