Bailout: One Down, One To Go

Given that “World News” in the USA means news about what is happening on the other coast of the USA and the fact that many US citizens have never been outside the State they were born in, I can understand your average American voter neither caring nor understanding the consequences for world’s economic systems of a no vote on the package, though if the vote is not passed they will very soon learn the hard way when their employers bank overdraft is frozen.

The simple fact is that the current economic crisis facing the world was cooked up in the USA. The rest of the world’s banking system only got sucked in because the USA banks, fraudulently one might argue, repackaged low quality loans and sold them on as top grade investments thereby breaking the trust on which the system depends.

Yes, in the UK we may have some bad debts, but the borrowers are not all going default and our debt problems, even Northern Rock’s, would have worked through the system had the interbank lending markets not frozen in response to the realisation that one could no longer rely on the quality of, or content, of a “top grade investment bond” from a US bank.

So here we are, facing a potential meltdown in the world’s banking system simply because the USA lied to the rest of the world’s bankers and yet what do the political elite of the USA do? They worry more about the fact that there is an election coming up and phone the voters to ask their opinion rather than face up to the USA’s responsibility to fix a problem which can only be fixed at the source of the bad debt, namely in the USA

I’m afraid it doesn’t say much for the intelligence of US political elite.

What was that about Nero fiddling while Rome burned. In the USA it would appear that politician go electioneering while the world economy burns.

Finally, this issue about having to open the offer to overseas institutions is also clear. Low grade debt was presented as high grade investment bonds, in order to reduce the interest payable on the bond. There can be no argument that these organistions knew what they were purchasing as, had they known it contained low grade debt, then they would have either not taken it or demanded a higher rate of interest. They most definitely would not have knowingly taken on low grade debt at the low interest rates associated with high grade debt.

It was therefore deliberate, some would say a fraudulent.

Now that the matter is out in the open any action the US Government any attempt to address this problem without addressing the fact that this debt has been fraudulently sold abroad, will simply mean that overseas organisations will think long and hard before they make any future investment in the US or its institutions which would be a disaster for the US economy.

Darned right that the USA should bear the brunt of sorting out this worldwide mess. Even allowing for reckless 'self-certified' loans and overvalued properties with hidden discounts the vast majority of the mortgages in the UK are backed by property which cannot possibly have fallen in value to the point where assets are all deemed to be worthless. This worldwide fire sale is great for investors who can get into markets now but the average working family have put their faith in the corporate institutions and seen their pensions and shares evaporate in value. When the dust settles some of these corporate heads should be golden parachuting all the way into long prison sentences.

Vredfern,

I don't disagree with the sentiments of your posting but I think you need to take on board a large dose of reality in terms of what it will be like if the world is unable to restore confidence in the banking sector.

All growing businesses achive their growth by spending money today in the anticipation of a return later. Very few are able to fund this growth out of their own cashflow and therefore borrow, against a sensible and realistic business plan, to fund this investment. Indeed there are probably very few growing and economically propersous business which don't have some form of borrowings.

So, if you work in growing business and we let all these banks go to the wall, then in all probability your employer will not have the cash to pay your salary, so the people who caused the mess will not be the only one's to suffer. You and many other people working for fundamentally sound businesses will be joining them.

Don't misunderstand me, I don't mean for them to get away with what I the criminally fraudulent behaviour of repacking low grade loans, but that can come later.

Right now fixing the world's cash problems is our No1 priority as unless we do thi so some very healthy non-financial companies are going to go to the wall.