We are told there is a horrendously dangerous thing going on: bankers don't trust each other any more, they are scared and don't lend money any more, and without loans the economy collapses. Isn't that what they said it is about?
To us, down here, that seems weird and unbelievable. Not long ago banks were competing with each other giving us credit cards we did not ask for, promised zero percent interest for the first six months, the first eight months, a year. Have they run out of money to lend? No, it seems that the way business works these days is all with borrowed money. No bank has their own money any more, they borrow money overnight to pay something that is due on a loan.
Bubbles in thin air. I'm so old fashioned I don't buy if I don't have the money to pay for it. Except a house. It's all right to buy a house that costs many times my yearly income because it keeps its value. A house is not only something we need but over the years I might add a sun room, insulate and so improve the value of my house; I would landscape the land around it. If I keep it clean and painted, it probably will keep its value, or even appreciate. For most of the last century I thought mortgages were given by a government agency, and the interest rate for years and years was 6%.
But in this new century things went crazy. Literally from one day to the next the price of land here went up. Planeloads of "investors" (in fact they were gamblers) descended on us to buy up a lot that had been waiting to be sold for ten years. Nothing special, just another acre that used to be worth somewhere between seven and ten thousand dollars. Then suddenly, it sold for twenty. Two months later it sold again, for fifty thousand. And before it finally settled down the price of an acre here went to a hundred and twenty thousand dollars. We who had lived here for years knew that this was a bubble, and sooner or later it would all collapse again. Which is, of course, exactly what happened.
Now they want us, taxpayers, to bail out the banks? They threaten that if I don't want to have the government spend seven hundred billion ($700,000,000,000.-) things will get much worse. How do they expect us to trust them?
To most of us, down here, money is something I need to exchange for food, to pay the electric and phone bills. Now that there is such a panic about it I am getting curious. Where does money come from? Uncle Sam prints it and then send packets of it to banks. I remember movies in which the bad guys highjack a money truck carrying tons of paper money. Do banks pay for that money? If not, who does pay? I guess what I really mean is where does the value of these pieces of paper come from? Who decides that? How?
For me, and my friends and family, money is what we have earned by working, or making things, repairing things, doing someone a favor. So we kind of know that for an hour of work I can earn enough to buy two loaves of bread, six ounces of cheese, four eggs; maybe some tea. Yes, we sort of know what we can buy for a dollar. Or a hundred dollars. But the big people who run things never talk about a dollar, or even a hundred or a thousand dollars. They talk billions.
We cannot grasp a billion. Few of us even know how much a billion is. In America a billion is a thousand million, a one with nine zeroes: 1,000,000,000. (Everywhere else in the world called milliard). I am sure it is a lot of money. Money people understand perhaps, but for us down here on the ground, it is words.
There are other words, like "liquidity," that mean nothing to us. Something to do with liquid, a fluid? Money must flow. Yes, I have always believed that. I must spend money or give it away, then it comes back to me. You can't keep it under your mattress. But now, what the big people mean is that the big money, the billions, trillions, whatever, that slosh around the planet, does not flow enough any more. And so we have to DO something.
Today they explained that it was not only the liquidity that was going wrong, but banks did not trust each other any more, so they would not lend money to each other. Because, and now it comes out, the economy is a game played with borrowed money. Apparently no business starts with capital any more, you start with a loan. You enlarge your business with another loan. Maybe all those people who bought land here bought it with somebody else's money. They paid, let's imagine 10% interest on the money they borrowed (my savings account pays me 2% per year, and that maybe). Then they bought land for fifty thousand and sold, six months later, for eighty thousand. The gambler can afford to pay the man who loaned him the money at 10%: he still made a bundle in half a year.
Once there was a saying You have to have money to make money.
Now it is: You must make money with borrowed money.
That feels unreal to me, somehow dishonest.
Now they say the 700,000,000,000 dollars is really a loan, we'll get it back; it will not be a burden to tax payers. That does not sound too comforting to me at all when I have just accepted that the whole trouble is an economy based on borrowed money. What guarantee is there that my loan of 700 billion will be paid back?
A suggestion: I would like the government also, at the same time, to do something about personal debts on credit cards that charge more than 20% interest. You know, and the government knows, that with such usurious interest rates there is no way for a person to ever pay off that kind of debt. It is often unfair: the interest rate is that high probably because he was one day late paying his phone bill--nothing to do with paying off the credit card debt. Using a chunk of that enormous chunk of seven hundred billion would be reasonable to me if it were used to right a wrong. Some may think that it is unwise to help people who were unwise enough to go so deep into debt, but the depth is not really their debt, but the result of manipulations of the credit card company. Fixing that would be a lot better than paying bankers who have fattened themselves outrageously for many years. I remember hearing about the man who "earned" well over one billion dollars in one year, managing a hedge fund whatever that is (or was it a fudge fund).
One of the candidates for president has trouble distinguishing financial from fiscal. For many years fiscal said to financial: You're on your own, boys; it's a free market. But when the financial boys (and a few girls perhaps) dropped the bubble, and suddenly the whole house of cards collapsed, Washington created some handy billions (probably trillions, before we're done) to throw in the pot. So now, suddenly, fiscal steps in to rescue financial? Republicans are against that because it goes against the free market philosophy. Others are against it because it does not do anything for we the people. And those who are for it tell us that doing this will (may) prevent worse from happening. Really? Who says?