For the people, By the people

Friends, Family, (Fellow Countrymen),

This fall we are going to move further into economic practice and theory. We might start with the federal $700 billion bail out.

So, what are the tax payers buying? Their own mortgages and repackaged securities holding these mortgages. Why? Because investment firms don't have enough cash. They were expecting monthly paychecks from these mortgages in the form of interest and instead ended up owning foreclosed houses no body wants to buy. The risk taking investors don't have any free cash to lend to people who want to buy those houses. Which means that the financial markets can't sell them to raise cash ... to lend. You get the picture.

Until the big bad federal government steps in and buys these mortgages and mortgage backed securities for a lot less than they're worth (supposedly) and dumps $700 billion into the financial markets, things will be bad. The bankers will go wild though because they have cash and can make loans which lead to interest payments on good loans that are being repaid ... to enable more (hopefully, good) loans. That's the monthly paycheck, and investors can go back to their New York apartments, drinking, sniffing, and smoking parties, with expensive call girls (and all will be right in the world).

In the long run (economists love saying that), there is more money circulating in the economy. The treasury can put $700 billion into the financial industry by just printing more. (The government doesn't have $700 billion laying around. They owe $9 trillion, remember?) Though printing more money is unfortunately the source of inflation. So the average american is going to pay $20,000 for a car rather than $15,000 because the dollar isn't worth as much, in the future, and middle income americans just won't be able to buy the same stuff with their $50,000 a year salary.

That's the long and short of it. Good plan, bad plan. You decide. This is of course a nation 'by the people', so we all should have a say.

Love,
C