Thursday, September 25, 2008

Economic Illiteracy and the Need for Action Now

There will be plenty of time for dissection of the $700B bailout, but I am stunned, and more than a bit angry, about self-righteous calls for NOT doing a bailout to keep credit markets functioning.

I'll tell you what such comments are not:

They are not moral clarity.
They are not about fairness.
They are not right.
They are about economic illiteracy.

Like it or not, we have the lifestyles, jobs, and homes we have because of credit markets. If lenders withdraw from the market because their balance sheets skew negative -- our suffering and anxiety today will look like child's play. How about NO mortgage loans? NO small business credit? The economy would shrivel, jobs would disappear. Other policy goals that one would RATHER see $700B spent on will be impossible if the economy tanks.

Government funding can't replace private credit markets.

Let's not confuse matters: Government needs to act and act now to restore confidence in the credit markets.

Remember the Resolution Trust Corporation bailout? 744 savings and loans were liquidated by the government. It took them and then sold the assets -- not at fire sale prices, either. The total cost was $87 Billion, far less than estimated at the start of the crises. We'll get back some of that $700B from asset sales as well -- but only if we stem panic now so credit markets don't freeze up.

Sometimes in business, you have to act fast or face horrific consequences by delaying action. This is one of those times.

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