Hi Jim,
You raise very good points. Certainly the whole situation is much more nuanced than a blanket sum reveals. I understand the reasoning behind the plan and I hope very much that it works and, at the least, stabilizes the economy.
I worry a little though because I don't personally believe in "top down" solutions. I wonder how much the Fed (meaning of course the tax payers) can keep covering the loses of an economy that is so reliant on credit? At some point the tax fund dries up. What will we do if we reach that point? I wonder if it would be better to tighten the belt and let the market fall to a sustainable level. As I write this I realize that many jobs would be lost, many businesses would go under. I might be one of the casualties. We all might suffer to some degree. I wonder how much worse that loss will be if this plan doesn't work.
I've known several people who got in over their heads and had to file for bankruptcy. It seemed to force them to revise and live within their means going forward. If they had continually been bailed out by family and friends who had resources, even those would have eventually dried up. It helped when they had to face the limits of their productivity versus their level of consumption. If the Fed bails us all out when we've reached or passed the limits of what the credit industry can sustain, who will bail them out if the plan fails, given that the "us" in question is, for all intents and purposes of funding, "them"? (Sorry that was kind of a complicated and inefficient way of wording it, but the only other way I could think to write it involved ratios and calculus from Statistics and Econ classes, something I've vowed to avoid as much as possible since my college days!
).
Pardon my pessimism. I appreciate your alternative view and I truly do hope this move by the Fed works. I agree that the press rarely gets into the details of the
whole plan. Your point that the Fed could minimize losses and possibly, under truly bright skies, even turn a profit is worth considering. I wonder if there are other alternatives? Do we have to choose between a Fed bailout or a catastrophic economic collapse? While you're right that the media likes the shock and awe of gross figures, i.e. 1.3 trillion, they are also doing a pretty good job selling the idea that if such a bailout doesn't go through the economy is finished. Might there be nuances there that are overlooked? I don't know, but I would guess that a free market system that relies so much on credit will inevitably have to face serious "correction" from time to time. Is it best for such a system to be shored up by tax payers? Especially when the tax payers pockets may not be as deep as the credit lines are wide. Where is the balance?
Thanks for the alternative though. It's got me thinking...
