BANK’S ARE BANKRUPTING

TIME (2009) 2/9

GANDEL/ 25-28

There are at least 2 levels of banks. One includes the largest banks in the country. The second is the retail banks in your city or town.

The primary lending banks are the ones that a local bank borrows money. Primary lending means that they are huge and they rent money to the small local banks. The rate for the locals is higher than the big national banks. Why? Because, the local banks have to rent the money, they add to their price shipping, overhead, labor and profit.

Previous to Bush 43’ banks generally rented money to you and you paid them back at a higher rate so that the banks can make a profit. You purchased the luxury of having a great deal of money to buy a car, house or small business. Thus, you “qualified” for a loan.

However as time went on in the Bush 43’ era, banks were allowed to rent more money than they had on hand. This equity ratio went from a small difference to quite a large difference. At the national level, the banks went too far to extend credit and therefore they are going broke as more people can no longer pay for their houses or cars.

People lived beyond their means and banks were allowed to let them spend more than they had. Since the crash of October 6, people have lost their jobs, the money that came with the jobs, and have walked away from their houses. Banks at the local level now have a lot of house loans that are worthless.

Thus, they are going broke. There is much more to this, but this is the simplest explanation.

What will probably happen at the national level is all the big banks will temporarily be taken over by the government. This is called nationalization. Once, the government owns the banks, they can dump that commercial paper that is worthless and close banks that are bankrupt. The banks then are sold back to new private owners or some of the same owners and investors.

In the meantime, your money is “guaranteed’ by the government. However in the transition, it is possible that you could lose some money in the big change. Possible is not probable. Further, what my family is going to do is not necessarily what your family should do. We will not be held liable as we are not suggesting what you should do. You must consult your financial advisor, bank or other authority.

We plan to keep our CD’s in place. We also will have money for checking or credit cards. The rest, we plan to put in a security box in the bank. You can easily rent them. You do not earn any interest. On the other hand if something very unusual happens, you have rented a security box in which you have a key and so does the bank. These are troubling times and it is better to be cautious. However, your life and demands for living in a secure style may be entirely different. Further, absolutely nothing could change the amount of money in many instances that you have with your bank. In this instance, nationalization is thought to be what will happen according to TIME magazine. Further, it is probably the safest route. There are other strategies, but TIME believes that this would be the best. Others will prefer something else and so what will actually happen is a subject that we can not answer. At one time, authorities in the Bush White house said that “debt” does not matter. That statement made by the vice president appears to be wrong.

Last, we have dragged down numerous other economies because we have the largest economy and many of our dollars are purchased by other countries. We need to reduce the balance of payments and the various stimulus plans are supposedly geared to do that.

We want to avoid a run on the dollar. That means in the spot market, we do not want other countries deciding that we will never be able to pay for debts and thus other countries “dump” our dollars. That means that American dollars no longer buy much. On the other hand, way down the road, we do not want to have such a strong dollar that no one can afford to buy our goods and/ or services. This is a problem Japan is having.

The country financially was in great shape in the 50’s. From the late 60’s onward, American household’s purchasing power has been reduced. We need to move back to an economy where there are regulators to watch for illegal profit making. In other words, watch out for the crooks among the honest capitalist class.

During the late 70’s, the country appeared to voters to be over regulated and we had stag flation. The economy was stagnant but there was still inflation. We were told that the enemy was the government, and so we deregulated numerous economic activities. A country can go too far in either direction of over regulation or under regulation and the answer to getting the right balance be it a libertarian capitalist country, social democratic country, or command socialist country is beyond the expertise of this writer.