Oh Geeze

A big disclaimer: I'm a science teacher not an economist, this is my best attempt to figure this stuff out.

I didn't really want to get up this morning. I spent enough time trying to figure out the economic crisis last night and the
"bailout" bill to begin to form an opinion about the $700 billion bailout package. I couldn't explain it to you but Paul Krugman of the NY Times has given the best answers I've seen so far as to what is happening and why government action matters. The basic takeaway: Wall Street doesn't matter as much as the credit market (the ability to borrow money to keep your daily business going) and right now banks are afraid to give any money out because they don't know if they are going to get it back. Banks are afraid to lend to banks because they don't know how much "toxic debt" (mostly those subprime mortgages) that banks have nor do they know how much or how little that debt it worth. They are afraid of what could be there and like people during the depression want to figuratively stuff it under their mattresses where it is better safe than sorry.

This hurts the economy when a business goes to borrow money to keep its doors open. Commercial lending seems to be very different than personal lending and much more common. For instance, a construction company gets the contract for a big job to build a house. They get an upfront payment from the client but it won't be enough to cover the costs of materials, labor, insurance, and all of those things so they borrow money from the bank to cover the costs of the project until its done. I have no idea about the historical context of this type of financing but I know it allows the current economy to function. So if banks won't lend money, businesses can't make their payroll, purchase supplies, etc and that's how people get laid off. This comes back to the subprime mortgages by way of banks and investors (who give money to banks to invest with) who are now so afraid of risking their money they want the safest place to put their cash. So, the government doesn't really have to bail out wall street, it has to get the credit markets unstuck. The bailout seems to embrace the theory that the government would buy up these toxic debts and make banks less afraid of each other and more likely to lend money.

My opinion on Congress is mixed. First, I'm a bit panicked and I want them to do something, anything that might free up the credit markets so that businesses can get the debt they need to keep functioning. But, once I move the panic aside I can think a little more clearly about it and I want the government to come up with the best possible solution to the current problem. From what I heard this was not this bailout bill. From what I heard from a wide political spectrum was the Representatives hated this bill and were fundamentally opposed to it. (Dems because it didn't have enough protections for individual people and Republicans because they believe for a capitalistic system to work you need a free market economy that is left to correct itself without government intervention). So while there was politicking and the entire government looked like spoiled children, everyone seemed relieved that it hadn't passed because no one, even those who voted for it, liked it. But there was a deep belief that something, anything needed to be done.

So while I currently hate politicians this one was less political that I originally thought. This one was, at its core, about beliefs about the role of government in your everyday lives, and while its not pretty, it is fascinating to watch.

Unfortunately, it's fascinating to watch like you slow down at the scene of an accident and like that accident, something needs to be done and done quickly to free up money. There are a number of smart people who have good ideas that are politically palatable but those ideas take a long time to get from idea form into problem solved form.