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Time to rethink the bailout | what will we do after the bailout, when the next crisis hits?

I am going out on a limb here, pre vote in the Senate this evening.  I am now wondering if the bailout is the right thing … why?  Here are some reasons:

Things to expect post bailout:

  1. a major credit card company will go bankrupt in 2009 – you pick the one (I think I know which one)
  2. 2,000 – 3,000 regional US Banks will go bankrupt in 2009 ( there are 8,000 banks right now)
  3. a non-North American institution will go under

So what should we / North America/ EEC do when 1, 2, or 3 happens?  Is the bubble so tight that it is time to let it burst?  Why not let the market flail around and sort itself out.  Note that the enormous drop in the DOW Monday was minor compared to the rise over the last 50 years.  Last time I checked, stocks were a long term investment.  “Widows and orphans’ invest in Government bonds.

Comments pre vote welcome.   We are all smart after the vote 🙂

5 thoughts on “Time to rethink the bailout | what will we do after the bailout, when the next crisis hits?”

  2. Well, there’s only a couple of credit card companies that also lend money (act as their own issuers and acquirers) and one I know of that dove headlong into securitizing their receivables…. (hint it’s not V or MC, they have no direct credit exposure)

    3000 is a big number of banks. But then a lot of consolidation would be happening anyway in the next several years.

    No country needs 8000 banks.

  3. @Bankelele – @thomas – I only picked 3000 being approx one third. The challenge with interbank funding will tend to hit them harder, although there are stories appearing now that Credit Unions are gaining deposits at the expense of the big banks. To the extent that occurs, then the funding problem will be less.

    re Credit Card companies, they are generally predicted to see the next set of issues with defaults. To the extent they are bank owned the outcome could be different than the prediction, and I hadn’t meant to narrow the field – just that credit card companies will have serious issues with defaults.

  4. serious question. How do you reason that credit card companies will be affected? Are you under the impression that a culture of debt has resulted in the necessary undermining of institutions that profit based on what are essentially short term high interest loans, or is the current crisis a catalyst for a series of foreclosures and bankruptcies that will redefine how the credit industry functions?

  5. This bailout is just one more example of the indivisible handjob stroking irresponsible CEOs and CFOs with billions so that they can run the American economy even further into the ground. So much for Keynesian economics. If the goal is to stimulate the economy, why not give the money directly to the American taxpayers? We could do twice as much good for the economy by giving half as much money directly to hardworking American taxpayers. A bird in the hand is worth two in the bush administration.

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