Wednesday, October 29, 2008

The Bail Out and Rate Cuts

For a bit of a change of pace, but still with a focus on science - the science of economics. OK, that isn't science any more than astrology is, but they do get a semi-Nobel in economic science. A bunch of Swedish bankers would never make a mistake. Here is my reaction to the rate cut.  :-)

The Federal Reserve cuts interest rates by only half a percent to 1.0% - WIMPS!

One of the really cool things about the bail out, is that rate cuts do not have to stop at ZERO. We can use the government to subsidize borrowing. If the interest rate is minus 5 percent, the government will reimburse the bank for the amount of money they are paying you to borrow money. 

If the original bail out plan did not appeal to the Huey Longs of the world, this one will. Of course, they will have to come up with some sort of needs testing so that it does not benefit the really rich, but it can put money in the hands of the poor. 

If you structure the loan just right, the interest rate you receive for borrowing the money could cover your payment on the principal and you would never have to pay anything out of pocket.

Sign me up for a few million in loans. I don't want to overdo it, so I will not ask for more. I will then quit my job, so that the unemployment numbers improve. This is clearly a Win-Win-Win situation. The more money the government gives away, the better for everyone.

Instant Recovery! FDR would be proud.


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