The bank stimulus program

Thoughts about the bank stimulus program.

The yammerheads out in the blogosphere, as well as some of the talking heads on national TV are demonstrating once again their propensity to either forget or ignore history.

Now, some of these idiots are claiming that the first bank bail-out was not necessary. They seem to think we were not really facing an economic crisis. They are now back to preaching that big business, if left alone, will be self-regulating, and will solve all their own problems. BALDERDASH! To ignore history is to repeat it.

Last November, I had dinner with an imminent economist, a Professor at a prestigious university, and a member of the Council of Economic Advisors. My question to him was, “How close did we come, in September-October of 2008, to an economic melt-down?” I expected his answer to be 30-60 days or so.

His answer shocked me. “3-5 days.”

His reasoning is very simple. He said “It was a potential crucial problem with inter-bank lending, which was already beginning to dry up. The solvent banks were realizing they had to protect their own clients, and could not risk further loans to crippled banks. If Congress had not passed that bill on the second try, the ban on inter-bank lending would have spread to ATM machines. That would have been fatal!”

It works like this. If your bank card is issued by Bank A, and you go to an ATM machine owned by Bank B, than a very short-term inter-bank loan is involved, until Bank A reimburses Bank B for the money you withdrew.

But, Bank B, which is solvent, decides they are not going to make any more inter-bank loans to Bank A, which they consider to be a risk. So the next time you go to that same ATM machine, you insert your card and receive a notice that withdrawals from cards issued by Bank A will no longer be honored.

What would you do? You would immediately go to Bank A and withdraw all your money! You have heard the stories from the 1930’s when banks closed up and left depositors out in the cold.

We would have had a bank run, which would have caused the insolvent banks to close. The panic would have spread, fueled by the national media, and we would now be in the middle of a major depression.

We came that close, yet the idiots cannot face facts. The funny thing is that although it happened during the last months of the Bush administration, they try to blame all this on President Obama. Wonder why?