Don’t read any further, if you are the ALL knowing..
The only good thing about the bad times is the slowdown; we get to do a lot of reading, writing and anything else which involves no spending. Gone are the days when I would just walk into a shop and pick-up a DVD even if I just wanted to watch it once in my entire life. I never really understood what really hit us until the past few days when I stopped being movie-consuming-freak and got into news. But trust me most news we are served hot either don’t understand the roots or just don’t want us to know the truth. Asking ourselves the most important questions might reveal the problem or even better help us find a solution.
Firstly, what happened to all the money that existed in the market? Nothing, money never really existed, it was all assumption - One of my friend had 500 google share at 600$ each, now he finds himself wiped out of 150,000$. He never really invested 300,000$ to get those shares. That’s how we got the intangible wealth!
What is the bail-out? We are printing more money to compensate for the intangible wealth that never existed.
Why did this downturn start with a mortgage crisis? Mortgage value drives consumer confidence. If you own a house that you bought 5 years back at 200,000$ and if it was 500,000$ last June; you’ve the confidence of 500,000$ asset which results in an almost instant drive for buying more - a consumer is born.
Why banks are being helped? A small business owner in Texas employs 10 talented people, he knows that they have always turned in the returns and trusts them to do so in tough times. Five of his men are currently producing something tangible, five are not - a smart man knows that the remaining 5 can start producing something in the next few months, he doesn’t want to let go them. He knocks at the banks for a loan to pay them their salary until they start producing - he is taking a chance but every man must be given a chance, the only organizations capable of empowering these men are banks. Banks turn him down, he lets 5 go, and we lost 5 consumers.
Will government strategy work? At first glance, from all the answers that I’ve provided it looks like the government has got its act together, found the root of the issue and are addressing it successfully. But printing the currency to compensate the market for all the intangible wealth will only flood the market with more $$ and result in devaluation of the currency over a long run.
And so? The mission is not to create tangible wealth; it is to re-create intangible wealth! We start at the bottom; we provide perks to organizations or individuals investing on mortgage for the next six months, when demand increases prices fix themselves. What perks are possible? Full income tax refunds for new home-owners, tax cuts for organizations, promise of naturalization to immigrant mortgage investors and finally convert every potential buyer to a home owner instead of helping people who own a home that they can no longer sustain.
