Getting Sold on the Credit Crisis

I've been whiplashing (or, more gently, cycling) through my reactions to the credit crisis...

Is there really such a dire situation that a bailout is required?  And, if a bailout is necessary is this troublesome bill the right approach?

I've vacillated on the first question.  I've not heard anything from any politician (Obama included) beyond "trust me, it's bad."  I've tried to read economists and analysts whom I respect to see if I could get a better handle on the situation but the most persuasive, detailed arguments were that it was being spun in the corporate interest.  So I was inclined to think that the bailout was just a banking money grab during a window of opportunity.  However, I wasn't completely swayed and it kept nagging at me and I kept reading and now I am persuaded that the crisis is real. 

This article detailing many of the events that went into creating the crisis is good.  One thing jumped out at me that I hadn't heard before and that is some large money market funds breaking the buck.  The LIBOR rate spike.  Problems in the municipal bond market.  Add all that to the anecdotal evidence of small business owners losing access to credit.  As a small business person myself who has had to use bridge loans to cover cash flow when clients pay late, I don't want to be in a position to borrow against receivables which is far more expensive.  If I had payroll to meet I can imagine how panicked I might feel right now.

I think the bill as it stands now is bad.  Especially with the added "sweeteners."  (Though some are appropriate such as lifting the FDIC cap to $250,000 others such as extending for another year AMT relief should be addressed separately though I'm happy to have it for now).  It is clear that it is not sufficient.  Future action will have to be taken.  And it does nothing to address the root causes.

I'd like to see much greater regulation but that will take much longer than a few days to figure out how to overhaul that system.  But with 3 banks now holding as much as 50% of deposit-taking retail bank activity, we will be setting ourselves up for a world of hurt if it doesn't get done.  I'd like to see a HOLC type of program implemented (as Chris Dodd and Barney Frank have been working on for months).  Loan workouts that keep people in their homes not only are far less costly but have broad ripple effects.  Everybody loses when communities become ghost towns, boarded up houses cause neighbors to lose property value, tax bases erode and crime increases.  And, yes, some people who don't deserve to be rewarded will be but far more who do need the help will get it and there's plenty of moral hazard to go around.  Nobody's hands are clean in this mess.

I do think the equity taking positions could be much stronger and oversight/enforcement much tighter and that could be done now.  Unfortunately that's not what the focus of the holdouts will be.

Most of all, I am waiting for someone to step up to the plate and not fear monger but figure out how to explain this all to the American people in clear, understandable language.  I am very disappointed that nobody in public life seems capable.