Economic Stabilisation
John Mauldin explains in easy to understand language why this bailout is required. In great detail he expands on my comment yesterday; I think $700 billion may look like a steal or a pipe dream in the months to come.
John discusses the size of the subprime problem “Over $500 billion has been written off so far, with credible estimates that there might be another $500 billion to go”
Remarkably that view is still in line with S&P’s April prediction I commented on a few days ago. -> Excellent prediction from back in April, Standard & Poor’s recently placed an estimated price tag on this worst case scenario — $420 billion to $1.1 trillion of taxpayer’s money. read more
John outlines why this problem on Wall St will spill over to Main Street unless the bailout, or economic stabilisation as he calls it, takes place.
I recommend you read John Mauldin’s “Who’s Afraid of the Big Bad Bailout?”
One more quote:
What happens if we walk away? Within a few weeks at most, financial markets
will freeze even more. We will see electronic runs on major banks, and the FDIC will
have more problems than you can possibly imagine. The TED spread and LIBOR will get
much worse. Businesses which use the short-term commercial paper markets will start
having problems rolling over their paper, forcing them to make difficult cuts in spending
and employment. Larger businesses will find it more difficult to get loans and credit. That
will have effects on down the economic food chain.
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