Lowering rates again?

The Fed is talking about cutting rates again. When will these guys figure out that it's a credit SUPPLY problem, not a credit demand problem, and that cutting rates will only make credit supply dry up further. In fact, the Fed should be raising rates, not cutting them.

Consider this, if you had $100 and someone wanted to borrow it, would you be more likely to lend it if they gave you $5 back, or if they gave you $10 back? Assuming you're not a golfer, you said $10. By lowering rates, the Fed would drive down the amount of money that lenders get paid for lending, and make lenders less willing to lend.

How Paulson's Plan Might Fail

Hank Paulson wants to buy up bad assets in a reverse auction. The main problem with this is that it is not targeted on the right companies. There are roughly 3 kinds of companies in this crisis:

1. Companies in good shape that don't need a bailout


2. Companies in terrible shape that will probably fail even with a bailout or should not be rescued


3. Companies in bad shape but will benefit from a bailout or need to be rescued

Bailout money should only go to companies in the 3rd group and should absolutely not go to the 2nd group. With Paulson's plan, we're going to be giving money to all 3 of these groups. This will raise the costs to taxpayers much higher than it needs to be. And it risks not having enough money for the 3rd group because we've given so much to the first and second groups.

Whatever bailout plan we come up with, it needs to target the places where it's most needed.

$700 billion?

Wow. $700 billion. Seriously?

The most shocking thing about this is that people just seem to be going along with it. The most discussed questions seem to be, how will it be done and what will it mean to spend $700 billion. Once again the media is just rolling over and accepting that whatever the Bush administration says is a good idea. Even the feeble democrats in congress are willing to go along if they get "oversight". No one seems to be asking if it should be done at all.

Giving George Bush another $700 billion is about the dumbest thing I've ever heard. We already gave him hundreds of billions for Iraq and look at what a mess he made of it. At what point in the last 7 and a half years has the Bush administration done anything to suggest they should be trusted with $700 billion.

That said, giving anyone $700 billion to fix this problem is idiotic. If the only way you can think of to fix something is to throw $700 billion at it, you've effectively proven you're not going to be able to fix it at all--$700 billion or not. Bernanke and Paulson have consistently tried to inflate themselves out of trouble. They already have us in a real recession, if not a nominal one.

Inflation is now, and has been, way above the meager growth rates the Bush administration is citing to prove that there's no recession. If we're all making fewer dollars in real terms than we were 6 months ago, that's a recession.

Printing money is not a solution. We'll just have inflation to go with our economic crisis instead of just an economic crisis. Please, someone stop these maniacs.

Fix Lending Standards

One of the problems leading to the current economic disaster was lax standards by lenders. This happened because lenders were able to sell the loans on to uninformed investors. There is a simple fix to this: require lenders to keep a certain percentage of all loans they make. If lenders have to keep between 10 and 25 percent of all loans, it will keep them from knowingly making bad or risky loans with the intent of selling them on.