Word: bails
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...Less-leveraged business, in fact. The irony is that in the deleveraged society the U.S. is in the process of becoming, it's the careful consumer who may ultimately bail out the economy. Ashworth believes the U.S. savings rate will rise to 5% of GDP over the next two to three years. "We're going to save more and spend less, because now we don't have a choice," he says. That increase in savings, he figures, will amount to some $1 trillion - about the projected size of next year's deficit...
...markets do on a daily or weekly basis, because they've become purely speculative. Economic reason has been tied up and shut in the cellar," says economist Marc Touati, director general of research and strategy group Global Equities in Paris. Touati adds that recent developments - including American and European bail out plans for banking and financial systems valued together at over $4 trillion and the drop in oil prices and value of the euro - have given markets lots of reason to be bullish big time. "But they're are acting like spoiled kids throwing a tantrum: They've gotten gifts...
...Recapitalize banks. With all the losses, banks have insufficient equity. Banks will have a hard time raising this equity under current circumstances. The government needs to provide equity. In return, it should have voting stakes in the banks it helps. But equity injections also bail out bondholders. Right now the market is discounting these bonds, saying there is a high probability of default. There needs to be a forced conversion of this debt to equity. If this is done, the amount of government assistance that will be required will be much reduced...
Once upon a time, the Mantra was, Get a job, maybe two, and save. Building a cash reserve was required to obtain decent credit. One's work and savings history became one's credit rating. Why should we bail out lenders unless they can perform reasonable risk assessments? Lenders once insisted that consumers demonstrate a responsible financial history before lending. What has happened to this commonsense approach? Susan Staudt, WAUKESHA...
They've saved the bankers, but what about the butchers, the bakers, the autoworkers and their dented 401(k) savings? Who's going to bail out the retailers, restaurants and manufacturers small and large? The government has committed $250 billion to rehydrate the balance sheets of the nation's leading banks and get lending flowing again. But if you're not exactly feeling reassured, there's good reason. With the global financial system wobbling, policymakers don't have many ways to stop the rest of the economy from heading for a recession. The challenge now is to try to contain...