Rescue package: Oil change for U.S. economy; next up: tune-up

Posted Sep 29th 2008 9:00AM by Joseph Lazzaro
Filed under: Forecasts, Politics, Financial Crisis

Metaphors sometimes oversimplify, but think of the U.S. Congress' 2008 bailout bill (pdf) as a long-overdue oil change for the U.S. economy.

Still, as any driver knows, an oil change is not enough to keep a car running well. You need to have it tuned, and keep all of its engine, transmission and related systems maintained for the car to perform safely. So next up for the U.S. economy: a tuneup.

But regarding the rescue, if it goes reasonably according to plan, the U.S. Treasury, and the companion agencies the rescue creates, will slowly remove distressed / bad assets from the financial system, and in the process both stabilize the credit markets, and equally important, restore confidence in the financial system.

Of course, there's no guarantee the rescue will work as intended, but there was near unanimous agreement in economic and investment circles about what would happen without it: a freezing-up of the credit markets, contagion in stock and bond markets, panic, and a substantial reduction in the ability of companies small and large to function. In short, the worst financial panic since the stock market crash of 1929 that led to the Great Depression.

After the rescue package is in place, congressional leaders will get to work on institutional reforms needed to update both regulations and their guiding institutions so that this doesn't happen again. In the weeks and months ahead, all will be reviewed in this space after Congress fleshes-out the details of the rescue package. For now, see BloggingStocks' Peter Cohan's post for a look at several prudent reforms the U.S. Government should pass when the new Congress begins lengthy, regulatory review work in January 2009.

And about that tune-up: However, it's important to remember that the rescue package does not correct the problems currently ailing the U.S. economy. The rescue simply ensures that commerce will continue, i.e. that there's a system remaining to reform.

The U.S. economy's structural problems remain. Quite simply, those problems must be corrected or the next crisis will mark the end of corporate capitalism in the United States.

Economic Analysis: A U.S. House of Representatives vote on the rescue package will likely occur Monday. The U.S. Congress will then break for Rosh Hashanah -- the Jewish New Year and a high holy day in Judaism -- then reconvene Wednesday, at which time the U.S. Senate will begin debate on the rescue package.

Tags: 1929, 1929 stock market crash, bailout bill, bond market, capitalism, corporate capitalism, credit markets, Democrats, financial crisis, gdp, Great Depression, inthenews, Paulson, Republicans, rescue bill, U.S. Congress, U.S. economy

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Reader Comments (Page 1 of 1)

9-29-2008 @ 11:29AM

planet kolob said...

Is my math correct?

I'm against the $85,000,000,000.00 bailout of AIG. Instead, I'm in favor of giving $85,000,000,000 to America in a 'We Deserve It Dividend'.

To make the math simple, let's assume there are 200,000,000 bonafide U.S. Citizens 18+. Our population is about 301,000,000 +/- counting every man, woman and child. So 200,000,000 might be a fair stab at adults 18 and up.. So divide 200 million adults 18+ into $85 billion that equals $425,000.00.

My plan is to give $425,000 to every person 18+ as a 'We Deserve It Dividend'. Of course, it would NOT be tax free. So let's assume a tax rate of 30%. Every individual 18+ has to pay $127,500.00 in taxes. That sends $25,500,000,000 right back to Uncle Sam.

But it means that every adult 18+ has $297,500.00 in their pocket. A husband and wife has $595,000.00.

What would you do with $297,500.00 to $595,000.00 in your family?
* Pay off your mortgage - housing crisis solved.
* Repay college loans - what a great boost to new grads
* Put away money for college - it'll be there
* Save in a bank - create money to loan to entrepreneurs.
* Buy a new car - create jobs
* Invest in the market - capital drives growth
* Pay for your parent's medical insurance - health care improves
* Enable Deadbeat Dads to come clean - or else

Remember this is for every adult U S Citizen 18+ including the folks who lost their jobs at Lehman Brothers and every other company that is cutting back. And of course, for those serving in our Armed Forces.

If we're going to re-distribute wealth let's really do it...instead of trickling out a puny $1000.00 ( 'vote buy' ) economic incentive that is being proposed by one of our candidates for President.

If we're going to do an $85 billion bailout, let's bail out every adult U S Citizen 18+!

As for AIG -
* liquidate it.
* Sell off its parts.
* Let American General go back to being American General.
* Sell off the real estate.
* Let the private sector bargain hunters cut it up and clean it up.

Here's my rationale. We deserve it and AIG doesn't.

Sure it's a crazy idea that can 'never work.' But can you imagine the Coast-To-Coast Block Party! How do you spell Economic Boom?

I trust my fellow adult Americans to know how to use the $85 billion We deserve the 'We Deserve It Dividend' more than the geniuses at AIG or in Washington DC.

And remember, The Family plan only really costs $59.5 billion because $25.5 billion is returned instantly in taxes to Uncle Sam.

Ahhh...I feel so much better getting that off my chest.

Now, how about the $700 billion???!!!

9-29-2008 @ 9:33PM

Darren Miller said...

Your math is not right , it would be 425 dollars per person. This is why the american economy is messed up. Nobody does the math right. They just want a bunch of money for themselves and they want it right now..

9-30-2008 @ 9:02AM

beachpaul said...

Is everyone on medication? Houses have value, just not the value that is owed on some of them, not all, some. On the "some", interest rates should be adjusted downward to a fixed rate to those who can afford to pay the mortgage. The mortgage holder should take the hit. On those who can't afford to pay even with the adjusted rate, foreclose. We, the taxpayer will share the loss with the lenders. Share. There will be buyers for real estate at deflated, realistic prices. Most of us did not speculate through this nonsense, why should we now?