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Voicing our support for a $700 billion taxpayer-funded rescue of financial institutions isn't easy. Public sentiment was against the bill approved by Congress last week as many Americans see it as nothing more than a bailout of Wall Street fat cats, like the one depicted in our editorial cartoon today, who have fallen on tough times due to their own greed.
However, we believe Americans who have the most to lose if our economy nosedives into recession will benefit from the bill.
Of course, highly compensated and sup-posedly talented banking and securities executives brought problems on themselves by leveraging their companies and putting profits ahead of common business sense. Shame on them!
Our concern is for average Americans who face even bigger hits to their savings, retirement, mortgages and even jobs if the economy further collapses.
We liken the crisis to a car with a faulty battery. The nation's economy is the car and the system of credit markets, inter-bank loans and general liquidity of money is the car's battery. The car can't start and move down the road if the battery doesn't work. Our nation's economic battery is dying and needs a jump start. The bill approved last week, we hope, will do just that, getting our nation's economic system running again.
Our country's banking system has to continue working if we're to avoid panic and a return to days of hoarding cash in our houses. We rely on our ability to get a mortgage, loans for cars and home-im-provement projects. Businesses need short-term loans to help them meet cash needs for purchasing inventory and making payroll.
Healthy banks have excess cash and it's common practice for them to loan that money to other financial institutions. The lending bank earns interest and the borrowing bank uses the funds to make new loans. The crisis has caused banks to hold on to their cash. Big deal, you say? But it's the free flow of capital that allows businesses to keep their doors open. A financially healthy banking system allows us to remain confident about our savings and retirements and to purchase the big-ticket items we need but often can't pay cash for.
When financial systems bog down, as ours is doing, we all suffer. The local im-pact can be difficulties in obtaining mortgages, even for borrowers with quality credit, a healthy down payment and means to make monthly payments.
Our nation faces the most serious economic crisis since the Great Depression. Had Congress failed to act, the nation's economy faced serious recession. It still may.
The $700 billion investment in aiding financial institutions to remove bad assets, including subprime home loans, from their books, will re-fire our nation's engine. As that happens, our nation's leaders need to apply the brakes to the practices that got us into this problem, namely overly lax lending practices, not with our local banks, but at national lenders who offered mortgages to people without checking to ensure they made as much money as they said in applications. Simply put, some people bought more house than they could afford, paying low interest rates on adjust-able-rate mortgages that soon reset to higher rates with monthly payments they never could afford. Some banks required little or no money down, making it easy for people to simply walk away from homes that they had no equity in.
The economic rescue plan approved by Congress will allow the government to set up an auction-like system for purchasing bad assets, helping place a value on them. Over time, when our economy finds its footing again, the government will make money by reselling those assets
Will other banks fail? Probably. Is our economy headed for more rocky times? Without a doubt. The Labor Department reported Friday that employers cut payrolls by 159,000 positions last month, the biggest loss of jobs in five years.
Let us take this opportunity to point out that our local banks are faring well, based in part on their commitment to sound banking policies and prudent lending. Prices of stock in Old National Bank and German American Bancorp, the parent of First State Bank, have been holding up well. And Fifth Third Bank, based in Cincinnati, has recovered some of the de-clines in its stock price as the crisis affected confidence in large regional banks.
Conservatism is a virtue when it comes to money, no matter if it's our pockets or the government's coffers, and we hope no generation of Americans will have to endure the effects of terrible decisions of executives to reap huge profits by doubling down on bad bets.
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