Proficient Note Buyers
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September 29, 2008
BIGGEST...DROP...EVER...
Wow. As I sit here pounding out this blog, I can't really find a more appropriate word to start it. Wow. What we're experiencing is something we haven't seen since my grandparent's generation. Most alarming to me, however, is that most Americans have no idea (YET) how terribly bad things are right now.

As I sat with several of my family members discussing the federal rescue plan this weekend, I realized the knee-jerk reaction to the problem is to over-simplify the solution. "Let 'em (financial institutions) go down in flames" was one comment I heard. "My tax dollars shouldn't be used to bail out some executive whose bonus last year was more than I'll make in ten lifetimes" was also said.

Although I agree with those statements, one must have a macro-economic perspective to fully understand the slippery slope we're on. I asked one family member if he ever planned to borrow money again, i.e. finance a car, boat, 2nd home, etc. He indicated at some point he probably would. "Then you need Congress to approve the rescue plan", I told him.

The credit markets are frozen right now. I heard a caller on a talk radio station this weekend say that if the rescue plan wasn't approved, he wouldn't be able to make payroll this week. This is because his bank told him his credit lines would be rescinded if Congress voted "no". Maybe this caller goes out of business when he can't pay his employees, maybe he finds a short term fix and gets past this roadblock. Regardless, this scenario will likely play out for thousands of companies across the country.

Then what? Will all those (former) employees, the same ones who were calling their elected officials last week threatening to vote them out of office if they voted "yes" on the rescue be screaming "Something should have been done to save my job!"(?)

This crisis is real, it's complicated, and it will affect us all for many years to come. Banks are failing, and banks will continue to fail as long as they continue to drown in the bad debt they created in the past several years. And don't think for a second they're going to lend any money to YOU if and when you need it. Changes perspective a little bit, doesn't it? This economy revolves around lending - how can any company stay in business if its products can only be purchased with CASH?

Do I like the rescue plan? Absolutely not. Am I disgusted with lending standards that weren't standards at all? You bet I am. The blame should be spread all around, to Wall Street, the Federal Reserve, Alan Greenspan, the ratings agencies, mortgage brokers, lenders, appraisers, realtors, and borrowers. Playing the blame game, unfortunately, won't fix the mess. Doing nothing, which seems to be the politicians' preferred solution (at least until after they're re-elected), will yield DISASTROUS results, as we saw today with a 778 point drop in the stock market.

Is it too late for a solution? Maybe. I hope not. The stock market will continue to get hammered the longer it takes the politicians to act on the problem. Can we afford to wait that long? I think not.

(TRY TO) make it a great day.

Clint


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