A Novice View of America's Financial Crisis

The recent crisis in our financial system points to just how little the average American and the average American politician knows about finance and the workings of our capital markets. It is also interesting to see the rush to blame the Wall Street fat cats for the entire debacle. I am not an economist, but here are Gacman's random thoughts on this crisis:

The average American is outraged (90% of calls to congress) at the "rescue plan" that most believe only makes rich Wall Streeter's whole. Here is my assessment/opinion:

The current problem is linked primarily to faltering mortgages (which were spun into financial derivatives and sold as securities) and foreclosures. Though it can be argued that financial institutions were pushing highly leveraged mortgages on "unsuspecting" customers, those who took the mortgages are equally culpable. I don't know about you but I have never carried a balance on a credit card nor taken a mortgage that I knew I could not pay. I have always taken a fixed rate mortgage (no surprises that way). The lesson learned here is that if one could not afford to pay the highest possible future mortgage payment on an adjustable rate loan with today's money, then one should not take the loan. And do mortgage companies actually think a person who puts little or nothing down has any reason not to walk on their home if economics change; especially a home that is worth less than when purchased? Bottom line is that greed on both sides of the ledger has brought us to where we are right now, and folks, it is dire!

If this plan is not approved soon we will see a melt down in our financial markets. Washington Mutual will fail and this single bank failure alone will swamp the FDIC and their reserves. And WaMu will not be the only casualty (i.e., Wachovia, etc). I predict the stock market will drop over 3,000 points and anyone who has a 401k will see dramatic reductions in value that will take years to recover. Those who need to buy cars, houses or small businesses will be unable to secure financing, regardless of credit rating. Those in uninsured Money Market funds could lose everything. Credit card purchases could become void due to no available credit (from card companies) to fund purchases. Within 60 days it is possible that one could go to an ATM and not be allowed to withdraw funds that are known to be in one's account. The domino effect of frozen credit markets would force many companies to simply close their doors, leading to rampant unemployment. We will re-live the Great Depression which most of us have only read about in history books.

It should be known that I am a free market capitalist, but I believe we simply must have the government intervene in this crisis. And done properly, the taxpayer can be paid back over time and even at a profit. I support this plan even though I will not benefit directly from the rescue since our mortgage is current and affordable. My hope is that our leaders and citizens will embrace a plan soon.