Ok, I have been thinking.
If all this market and economic problems started with the banks overextending themselves. Making to many high risk loans. To many low interest deals. Not taking enough ‘real’ collateral. Running the real estate market up to new heights.
So now they all know they are in trouble. Not only in the USA, but worldwide.
And they are now hesitant to loan money – since they know they did wrong. They know it was the wrong thing to do to make all those loans with not enough solid financial backing.
My thoughts then – and I am just wondering here – if the governments in their wisdom (remember these politicians are not financial gurus, they are not economists), are now planning on throwing money like crazy at the banks to allow them to open up the purse strings.
Well – will this not simply make the problems worse.
Banks lent too much under the wrong conditions.
Banks realize their mistake – take corrective action by tightening up lending (seems like a smart thing to do)
Politicians see this and say; “oh oh – I will not get elected if people cannot spend money they do not have.”
Politicians reach into their magic bag of money (called a deficit) and give banks lotsa money.
Bankers smile gleefully and say; “gravy train just came in to town – let’s load up.”
Bankers then let the public borrow more money (stupidly), know that the crisis is only being put off for a short time, but the bankers do not care – they got the government money, and they get to keep charging interest – so they win in the end.
I don’t know – am I not seeing something here? Maybe I don’t know Keynesian economics very well. I should have stayed awake in class (like those politicians did) and learned more . . .