California asks the Federal Government for emergency loan

cnyexpat: California asks the Federal Government for emergency loan

The credit crisis is spreading. If you read this article you will see that for the first time ever, the State of California needs to ask the Federal Government for a $ 7 Billion loan to be able to make payments to schools, payroll, and also pay unemployment benefits. The need to borrow money is normal because cash collections from taxes are uneven relative to the time payments have to be made.

Normally, state governments and municipalities borrow money in the form of short term loans from the credit markets. But the credit markets have been shutting down, no one wants to take the risk of lending money to someone else and risk not getting paid back. The interest rates on the loans that are available are sky high. Lenders are worried that California's economy may collapse and they won't get paid back. Other states are canceling plans for infrastructure projects as they can't borrow funds.

The government bailout is desperately needed to calm down the markets.

Congress blew it on the bailout

Congratulations to you taxpayers who who were adamantly opposed to the $ 700 billion bailout. Today - the House of Reps voted against it. Immediately the stock market plunged to its biggest point loss in history (777 points on the DOW). International markets are plunging around the world. The U.S stock market has lost $1.4 TRILLION in value today - that 2X the $ 700 billion plan. If we had completed the $ 700 billion bailout, most or all of it would have been recovered and there may have even been a taxpayer profit made of up to $ 2 Trillion.

Everyone is way over-exaggerating the bailout at $700 Billion. What people don’t understand is that this money is not being spent - it is being invested in assets (loans) at fire-sale prices. These loans will be restructured and re-sold over time and taxpayers will make a profit.

We are collectively $ 1.4 Trillion poorer today. This number will increase if panic ensues. Be prepared to watch your Pension Plan fold up and not pay any benefits, your IRAs and 401Ks go to half of what they were. Be prepared for many of your insurance providers to fold up and not pay you a dime. Be prepared for your employer to stop giving you a paycheck because they can't get the short term loans and cash they need to make payroll.

The taxpayers have just shot each other in the foot. Why - because of a complete misunderstanding of how our economy works and because the media has fueled the fire of populist emotion without clearly explaining the logical conclusion of these bailouts - which are not nearly that bad. Lets just hope its not a fatal wound.

Please comment, debate and reply to this post ...