Mish's Global Economic Trend Analysis Message Board

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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: mishedlo who wrote (100821)	8/14/2009 10:04:38 AM
From: skinowski	2 Recommendations Read Replies (3) of 116555

for every dollar in defaults, banks need to raise 10-100 dollars from somewhere (depending on leverage) to remain well capitalized. So, the government went ahead and borrowed astronomic amounts of money backed by future tax revenues, and gave that money to banks. All that was accomplished is to allow banks to keep their doors open. The entire bailout did absolutely nothing to help the underlying problem, which is, of course, individuals and companies being too deep in debt during an economic slowdown. In other words, if there would be no bailout many banks would close. FDIC would pay off depositors an amount which would be only a small fraction of what was paid to make banks whole. Bondholders would lose money. Other than that, down on Main street, people would still have to deal with high debt and slow business, everything would remain roughly the same - but the government would not have blown a huge wad of money they didn't have. Question -- I may be missing something, but still, If a regular non-economist person like myself can grasp this, how come high flying economists and presidential advisors DO NOT??

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