On the economy- what they should have said.

The recent economic upheaval has left a large portion of Americans looking for direction and guidance. The news have been spelling trouble, big trouble, week after week. While some people understand what is happening and why, the majority of the population does not. Thus I was especially excited to see how the candidates addressed the current crisis and what ideas they would put forth to help ease it. It seemed obvious that whichever candidate provided the most effective conversation and perhaps solutions to the crisis could easily sweep the debate, if not the entire election. The logic being that if the ship is sinking whoever has the best idea on whats wrong and how to fix it would garner the vast majority of the support.

Neither candidate even adequately addressed the problem. Like two campers scared of a snake they both prodded it with a stick and then ran away. They both spoke in code and with no new ideas on how to fix things as they are now. Most important though, neither candidate showed an ounce of leadership by explaining to probably the largest audience they have ever had in their lives what the heck is all the fuss about!! Good leadership is not just knowing what to do about a situation, but using the knowledge and resources at your discretion and helping those who depend on you understand what you understand. How can your leadership be trusted when those you lead are in the dark about what can be seen from the drivers seat?

So, without more frustrated ranting this is what I believe either candidate could and should have said to explain whats happening… they might not have the perfect antidote, but at least let people know that either one of them DOES understand what is happening.

“Guys I don’t have to remind you that we are in an economic crisis, you know it, you see it, you feel it. When houses in your neighborhood are being taken by the bank, people are loosing their jobs, and you have a hard time paying for gas you know something is wrong. Allow me to briefly explain what is going on how it affects us all. This great country’s economy is interconnected by credit, it’s in your wallet, it’s what you use to buy your car and your house. Credit is money that we borrow to use now and pay it back later plus a fee. For most of us, using this credit makes a lot of sense, its better to get a school loan and start studying now than earning less for a long time until you’ve saved up enough. The same argument goes for buying a house particularly when you know its value may increase.

Now, companies use credit in similar ways- they get money now to hire more people and produce new products and services that will create value for stockholders, and more jobs for the economy. What is wrong with today’s situation is that many companies at the center of our financial system figured out a way to sell credit to companies and individuals who honestly couldn’t pay back the debt. The (Obama: lack of regulation) (Mcain: greed) drove these companies to make bad loans because they could quickly sell the stream of payments from a large pool of loans, and then go back to selling even more shaky loans, assuming that they had nothing to loose once these bad loans were out of their hands. Who bought the loans?  Institutions like pension funds, companies, and other banks, looking to invest their money into something that would pay them interest for a long time- at this point these loan packages usually were called bonds. But, again, as we now all know these bonds were made up of many loans from entities that couldn’t afford to pay for them. And so if you as the greedy bank, or the entitiy who bought the bonds, wanted to sell these bonds you had to do so for 1/3 of their price or less- that is if you can even sell it. Nobody wants these bonds hence why they’re called toxic. And yet the banks who created them had become so accustomed to selling these pools of loans that they actually planned to pay for day to day activities through the sale of new loan packages. And since they can’t sell them or can only sell them at huge losses, the credit that these institutions need to keep functioning is evaporating and the money that many institutions depended on by investing in the loans is not there.
And so the credit that you and I need for groceries, or student, car, and home loans is also withered. Effectively the economy could easily come to a complete standstill. Credit is like the water of an economy and if it can’t flow the economy dries up. Credit is made up of the money that all of us put into our checking accounts and investments and nobody wants to loose that money, and if lending it out has the risk of loosing it, we and our banks simply dont. We all take part in the credit system, we all need it, and without it the economy has a very hard time functioning.”

4 thoughts on “On the economy- what they should have said.

  1. Thank you for helping me understand how we got here. I’d like to know if there’s any hope that those who lent to people that couldn’t pay will suffer the consequences themselves?

  2. Many already are. Lehman Brothers CEO once worth hundreds of millions of dollars is now rushing to sell his art collection to make ends meet. The same with Bear Stearns CEO, once a billionaire now virtually penniless in comparison (lost 98% of his Net worth). Ultimately, though, I would hope that a smartly organized bail-out bill would focus on stabilizing and maintaining firms financial responsibilities to each other by paying for it through forced stock transfers from the bailed-out-firms leadership circle, this stock is currently almost worthless but in not so long will be worth massive amounts.

  3. I think your fundamental premise that it is incumbent upon leaders to communicate simply and clearly is right. There is so much confusion about the cause of this current economic crisis, even among the regulators and legislators who are charged with fixing the problem. Whoever can diagnose and clearly describe the economic problem will gain the credibility to suggest a solution.

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