Dad29’s comment on my Smith Barney post reminded me of a ridiculous statement in Paulson’s written comments to Congress:
We are looking at ways to possibly use the TARP to encourage private investors to come back to this troubled market, by providing them access to federal financing while protecting the taxpayers’ investment. By doing so, we can lower costs and increase credit availability for consumers. Addressing the needs of the securitization sector will help get lending going again, helping consumers and supporting the U.S. economy. While this securitization effort is targeted at consumer financing, the program we are evaluating may also be used to support new commercial and residential mortgage-backed securities lending. (emphasis mine)
In regular people speak, Paulson is suggesting that he wants to have part of the TARP funds focused on increasing consumer credit. Note that he isn’t referring to mortgages because he talks about that seperately at the end of the quote.
OK, I guess?
Hey, wait! Haven’t I been reading articles about how over extended the consumer is on credit? Haven’t I also been reading that unemployment is rising rapidly and many people are concerned about the security of their jobs? I think I also remember reading that the consumers have seriously cut back on spending because of their concern about future income.
Detroit has quit selling cars. Their lack of sales is not due to their high employment costs (although that may contribute). Thier lack of sales is not due to foreign makers having (at least perceived) better quality and design (I’m pretty happy with my US vehicles). Lastly, their lack of sales are due to a lack of credit (although it may hurt a bit) No, the fact that Detroit is trucking in mothballs by the ton is because the consumer has quit buying because they are finally concerned about managing the financial house. And it’s about time!
Consumer lending still exists. Loans are available for people who qualify for them. The only loans that have been cut back are the ones, similar to the housing mess, that you could get with no proof of income or ability to repay. Those loans have dried up and they should.
Unfortunately, our economy had been living on mortgages, car and credit loans that were far beyond the means of many of their owners to pay back. There is no short order fix for what we are experiencing. They economy needs to reset to levels that are sustainable and not the ficticious “we never have to pay it back,” levels.
Hank Paulson needs to put his monopoly money back in his pocket. None of what he is doing is going to speed or alter the resetting process. Pushing more money into the economy at this time will only set us up for more pain once things settle….get ready for inflation like it’s 1979!
