First, they really expected a Bush supported emergency bank bailout plan to just walk down the isles in the House. I’m sorry, but hasn’t the Bush administration been talking about the strength of the economy for the last several months? Years even? Given that they had their heads up their asses or were completely lying about the situation, why should be believe in any urgency about the bailout. Seeing as how they were completely wrong about the state of the economy for at least the last 18 months (the largest bank in the world – WAMU – doesn’t fail overnight folks), why are they suddenly right about the economy?

Then, this morning I read this article about a large slide in the manufacturing index. This should have been a no-brainer. If businesses can’t get money from their banks, they tap their other resource for capital: inventory. It’s a pretty simple business concept. Sell inventory and turn it into cash. Most businesses that sell products operate like this. Somehow, this is a foreign concept to the folks on Wall Street? Of course, in normal economic conditions businesses reinvest that revenue back into inventory. But if your bank is holding you by the gonads, you don’t buy more inventory. You keep the cash.

Good thing the fundamentals of our economy are strong.

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  1. I have yet to find anyone, stateside, or this side of the pond that can explain convincingly, what has gone wrong, what is needed to fix it and how we will know when it is working again. Now, that shows how unnecessarily complex the market is and how few people understand it.

  2. There are several factors that contributed to this. The single largest factor was selling mortgages that allowed home owners to go negative on their equity. This is absolutely the stupidest idea in the history of lending. What exacerbated this issue is that the lenders were not completely honest about the 3% they were making on the loan when they sold it to the borrower.

    This goes far beyond the sub-prime loan issue. People who could afford their homes at regular rates were doing this because it put more money into their pockets, money they typically invested into the stock market.

    What this meant is that a bank was essentially giving borrowers a loan on top of the loan they were already extending to them. Congress sat idle while the massive bad loans were piling up. At some point you always have to pay the proverbial piper. When that happened the s*** really hit the fan.

    Another big contributor is a war in Iraq that provides no advancement in technology for our economy. Compare WWII were we invented the nuclear bomb and hence the nuclear power plant. The Iraq war has given us no advancement in technology and just means money going up in smoke, loss of employees available to work, thousands of dead, and tens of thousands of permanently injured people who cannot do what they used to be able to do at work.

    Another big contributor that is starting to go away is the run up on oil. While a good portion of the run up was a significant increase in demand, it is clear that speculation drove the price of oil through the roof. The heart of every modern economy is energy. If there is ever a sustained increase in the cost of energy, the economy will suffer.




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