I do hope that Zach will do the right thing when this monstrosity of a bill comes up for a vote on Wednesday. The problem is that the government is trying to sustain the value of things that just cannot be sustained.
Yes, even though Lamar Alexander insists that Congress is doing something akin to clearing up a wreck on the freeway, it is much more than that. We are in this situation because the Fed has encouraged reckless lending in the housing market for many years. The mortgage securities, which have infected many financial institutions, have become near-worthless, and Congress authorizing the Treasury Department to buy them at par is not going to change anything; it just will make this crisis go on even longer.
As for raising the FDIC limits on bank accounts to $250,000, this will compound the problem, as it will encourage even more reckless behavior on behalf of lending institutions.
So, I would hope that Zach Wamp, after standing firm on Monday, will do the same later this week when Nancy Pelosi and all the others who are pushing this rotten bill will be putting on the pressure.
William L. Anderson
Associate Professor
Department of Economics
College of Business
Frostburg State University
Frostburg, Md.
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Quick professor, how much was a gallon of gasoline or house in 1980 when this limit was raised to $100,000? How about the average salary? What percentage of your salary did you have to save to have 100k in the bank in 1980? What percentage do you have to save in 2008?
If you are an economics professor, I'm sure you are familiar with the concept of inflation. Here are the facts and everyone else can decide if raising the FDIC limit is overdue. The problem we have is a confidence problem, WaMu, Indymac, and Wachovia failed because depositors feared for their savings and made a run on the bank to withdraw them as anything above 100k wasn't insured. Wow, 100k that's a lot of money, hmm let's see.
In 1980 the average income per year was $19,170.
In 1980 the average cost of new car was $7,210.
In 1980 a gallon of gas was $1.19
In 1980 a new house cost $68,714.
In 1980 the FDIC insurance limit was raised from 40k-100k
In 2008 the average income per year is $50,233, an increase of 162%
In 2008 the average cost of a new car is $28,715, an increase of 298%
In 2008 the average cost of a gallon of gas is $3.63, an increase of 205%
in 2008 the average cost of a new house is $225,000, an increase of 227%
So, could you please elaborate on why it is such a terrible idea again to raise the FDIC limit by 150% after 28 years. I am confused.
Mark Maynor
mark.maynor@gmail.com
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Nobody expects Paulson to buy anything at par (meaning face value). The distressed debt instruments will be bought at a meaningful discount to face value, varying on a case by case basis and depending on exactly how rotten the underlying credit is. While it's still unfortunate to be forced into this action, it's important to get the facts straight and distinguish between par and discount.
Zach had better vote for the plan this time. Free markets are extremely important, but so are little luxuries for our children, like food and heat. A collapse of the financial system would make 9/11 look like a day at the park; be careful what you wish for.
Scott Brown
Signal Mountain
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Mr. Anderson,
Your credentials could better serve the public if you would offer an alternative to the house bill considered. Nay saying is a blood sport here, maybe when your tenure dries up and your credit cards have a $500 limit and your health insurance is canceled, you'll realize something needs to happen for all.
I too am relieved the house voted no, the margin should have been wider. At some near point the House will have to come to a consensus on a rescue. This mess is a result of bad laws. It'll take a less bad law to resolve it.
Somehow, I trust Ben Bernanke's doctoral knowledge more than yours.
Prentice Hicks
Lookout Valley
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Mr. Anderson makes the correct point. Why do we continue to believe that government can solve all of our problems? We caused this mess by not speaking up sooner. No other nation can print dollars to pay off their debts except us... that is why everything costs more.
How much longer do you think the rest of the world will put up with this? The chickens are coming home to roost, and the easier, softer way will no longer work. Buy some gold and help your neighbor.
John D. Moon
Signal Mountain