Tuesday, September 30, 2008

$700B Bailout? NO… stimulus package

This is no bailout of Wall Street that we are dealing with. This is a bailout of our entire economy and possibly even the global economy. This credit crisis has reached critical mass in record time. If the Government does not act immediately we are about to see a depression that will make the Great Depression look like a walk in the park.

Let us take a look at what is really being proposed and how it will affect each of us and Wall Street in detail. It’s important that the American People begin to understand exactly how important it is that we enact this legislation yesterday!

What will it do?

This article is not going to go into depth about how we got into this situation. Let’s take a look at what exactly this proposed “Bailout” stimulus package will do. The proposal is for the Government to purchase up to $700B in distressed assets from banks at a discounted price. These assets will be held by the government until such as time as they can be resold for a potential profit in the future.

In simple terms this is all that is being proposed for this economic “Bailout” stimulus package being considered.

How Does that Help?

Great question. Once these distressed assets are removed from the books they will be able to free up those funds and make a fresh start at incurring more safe assets that will yield profits. This instant liquidity will allow banks to once again lend each other and the consumers of the United States of America credit again in a more responsible and profitable manner. This will reverse the current credit freeze that is in place in our Country. Over time the market will begin to gain confidence in these types of assets and the economy will return to normal.

This is the basic theory of how the stimulus proposal will help.

How Do I Benefit?

The question here should be how I will be hurt if it is not enacted immediately. Without this package being signed into law we expect to see an immediate and swift decline in the US Financial markets that will quickly infect all other aspects of the economy. More and more banks will continue to fall which will either require further intervention on behalf of the Feds or a steep and precipitous depression in our global economy.

- Housing prices will fall at an even faster pace that we are have seen thus far.
- Stocks will fall DRAMATICALLY and CONSISTENTLY causing massive losses to your 401K and any other stock market portfolios
- Your HELOC and credit card balances will be lowered or frozen
- Mortgages will be near impossible to attain except for the elite borrowers with plenty of money and liquidity

In essence you will be living in a modern great depression. This is not an option that should be allowed to come to fruition. It is important that every American educate them about what is happening and push their elected officials to act NOW without partisanship.

In the mortgage market we are seeing interest rates on the 30 year fixed slowly climb. Interest rates doing up on top of home values decreasing, stock market falling, and credit markets tightening all add up to only one thing… that is pain for you and me.

Silver Lining?

If our Government can pull it together and get something workable passed we predict that all of this doom and gloom can be reversed. It won’t be an overnight turn around but within the next 12 months we think that the market will gain some confidence, home values will finally level off in mid to late 2009, and interest rates should remain relatively low assuming inflation stays in check. Depending on which President we elect in November will be the biggest deciding factor after this stimulus legislation that will ultimately decide our economic fates. Hey… one thing at a time lets get this nuclear bomb behind us before we consider the impact of the two Presidential candidates plans for our futures.

We’ll be sure to keep everyone updated and try to translate as much as possible into every man terms the events and the impacts of this financial crisis as it develops!