Trickle Down Or Trickle Up?

OrganizingWeb.net » Real-estate » Trickle Down Or Trickle Up?

If you want to increase the income from your websites the best way is to attract more visitors directly from the search engines. To get these visitors you require higher search engine rankings. However finding the right information in forums is not always easy. READ MORE

Trickle Down Or Trickle Up?

Author: J.Stromsteen | Total views: 37 | Word Count: 595 | Category: Real Estate | Date: May 2nd 2008

For quite some time now the world's financial system has been fragile. The Federal Reserve Chairperson, Ben S. Bernanke is inundated with a dilemma in the wide ranged credit freeze surrounding today's financial institutions. This problem goes far outside what interest rate cuts can mend in the economy.

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.

Now there's a problem. Those speculative derivatives do not have the value that the Wall Street salesmen claimed they had. There's a desperate race to de-leverage at almost any price. Of course, buyers have grown scarce. No institutional investor wants to add more highly overvalued speculative package to his portfolio now that the true value of these packages is exposed in the light of day. We are in a liquidity crisis the magnitude of which we haven't seen since before World War II.

Commercial as well as investment banks are sitting on overvalued assets such as mortgages and private equity loans they cannot sell due to being packaged with derivatives of very questionable value. This is a nice way of saying that Wall Street lied about the value and has overpriced them by billions of dollars. Basically this means that they do not have the cash to make new loans and this is killing our credit based economy. For banks and brokers to make their balance sheets stronger by de-leveraging the banks would need to reduce the number of loans on their books. Doing this would overwhelm the economy and turn a bad recession into a long lasting depression.

This is why the Federal Reserve is bailing out banks with long term financing at low prices. What other option is there? Either let the entire financial infrastructure of the world freeze up or they lend money to financial institutions and accept the subprime mortgages and related securities of debatable value as collateral. This is how the Federal Reserve has become the buyer of last resort which is incredibly inflationary. These financial middlemen are projected to take the cash borrowed from the Federal Reserve and lend it out again to higher quality borrowers; unfortunately this is not what is happening. Theoretically, this would be considered the 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?

Article Source: OrganizingWeb.net

About the Author

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

Previous Article - Next Article

Copy and Paste Article Code.

Remember: The article body, title, author bio and links may not be changed or removed. By publishing this article, you agree to all the terms in our Terms of Service.

For quite some time now the world's financial system has been fragile. The Federal Reserve Chairperson, Ben S. Bernanke is inundated with a dilemma in the wide ranged credit freeze surrounding today's financial institutions. This problem goes far outside what interest rate cuts can mend in the economy. 
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. 
Now there's a problem. Those speculative derivatives do not have the value that the Wall Street salesmen claimed they had. There's a desperate race to de-leverage at almost any price. Of course, buyers have grown scarce. No institutional investor wants to add more highly overvalued speculative package to his portfolio now that the true value of these packages is exposed in the light of day. We are in a liquidity crisis the magnitude of which we haven't seen since before World War II. 
Commercial as well as investment banks are sitting on overvalued assets such as mortgages and private equity loans they cannot sell due to being packaged with derivatives of very questionable value. This is a nice way of saying that Wall Street lied about the value and has overpriced them by billions of dollars. Basically this means that they do not have the cash to make new loans and this is killing our credit based economy. For banks and brokers to make their balance sheets stronger by de-leveraging the banks would need to reduce the number of loans on their books. Doing this would overwhelm the economy and turn a bad recession into a long lasting depression. 
This is why the Federal Reserve is bailing out banks with long term financing at low prices. What other option is there? Either let the entire financial infrastructure of the world freeze up or they lend money to financial institutions and accept the subprime mortgages and related securities of debatable value as collateral. This is how the Federal Reserve has become the buyer of last resort which is incredibly inflationary. These financial middlemen are projected to take the cash borrowed from the Federal Reserve and lend it out again to higher quality borrowers; unfortunately this is not what is happening. Theoretically, this would be considered the 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? Article Source: <a href="http://www.organizingweb.net" target="_blank">OrganizingWeb.net</a> About the Author: J Stromsteen is an expert in field of finance. In addition to her website, <a href="http://cheapauto-insurance.com/">Cheap Auto Insurance</a>, she writes for Bush's Depression as well as <a href="http://first-time-home-buyer-s.com/">first time home buyer</a> to provide current information on the mortgage crisis.