Trickle Down Or Trickle Up? by J. Stromsteen

For decades now the world’s financial system has been weak. The Federal Reserve Chairperson, Ben S. Bernanke is plagued with a problem in the wide ranged credit freeze surrounding the financial institutions. This problem goes far beyond what interest rate cuts can fix.

The extremely low interest rates we experienced in the early to mid 2000′s as well as the tendency to throw caution to the wind has left the financial world at jeopardy. This care free attitude was started by Alan Greenspan; a major Wall Street player who was bailed out of trouble with borrowed funds and now has led us down a perilous path.

The derivatives speculated by Wall Street players do not have the value they thought they had. Now we are left in a desperate race to de-leverage regardless of the cost. Naturally the buyers have thinned out and institutional investors do not want to add to the already overvalued package in their portfolio now that the real value can be seen. We are now finding ourselves in a liquidity emergency to the point of which we have not known since before World War II.

Commercial as well as investment banks are stuck with puffed up assets such as mortgages and private equity loans they cannot sell because they are packaged with derivatives of exceptionally questionable value. This is a kind way of saying that Wall Street fat cats lied about the value and has overpriced them by billions of dollars putting us in peril. Basically this means that banks do not have the cash to make new loans and this is destroying our credit based economy. For banks and brokers to be able to make their balance sheets stronger by de-leveraging, the banks will have to reduce the number of loans they have on their books. This, unfortunately, would devastate the economy and turn a bad recession into a long-term depression.

Hence the bailout by the Fed, in the form of longer-term financing at the discount window. What else can they do? Let the entire financial structure of the world completely freeze up? The Federal Reserve is lending cash to financial institutions while taking as collateral the subprime mortgages and related securities of highly questionable value that cannot be sold in the open market. The Federal Reserve is becoming the buyer of last resort. This is highly inflationary. The financial middlemen are supposed to take the cash borrowed from the Fed and lend it back out again, this time to higher-quality borrowers, but this is not happening. In theory, the way this would work would be a trickle-down effect.

So why don’t we give a trickle-up effect a try? The purposed bailout will cost at least $1,000,000,000,000. That is one trillion dollars for those having trouble! Instead of giving one trillion dollars of newly created money to the Wall Street players who are largely a part of our current problems, why not give that money to the people of America? This way it can then trickle-up to the Wall Street players by stimulating the economy. By giving about $3,200 to each person in America we may be able to get the cash flow back in the right track. This means a family of five would get $16,000 in cash to spend how they choose.

Why can’t we do this to help all of America in this way instead of a few Wall Street fat cats? Why is it they should be given a trillion dollars of new money to throw around like they have in the past?

J Stromsteen is an expert in field of finance. In addition to her site, Cheap Auto Insurance, she writes for Bush’s Depression as well as first time home buyer to provide current info on the mortgage crisis.

Article Source: http://www.earticlesonline.com/Article/Trickle-Down-Or-Trickle-Up-/327012

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