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My son owns a tiny high technology business. He is currently working on a way to convert environmental waste into silicon. He has explained the process to me. It seems to work. But he needs money to build a test reactor in order to scale up his experiments.(R1)
My first thought was Sacramento. The State of California should have a strong interest in my son’s solution. Convert environmental waste into solar panels. How green can you get?
But California is broke. They got no money in Sacramento. They spend too much and tax too much. Bad combination.
How about the banks? They got no money either. They gambled they could create unlimited debt. Bad bet. Stupid idea. Many of our banks are technically broke.
So now our political “leaders” in Washington are trying to prop up our banking system with program called TARP (Trash Asset Regurgitation Program). They are using taxpayer money to buy a pile of dirty paper from the people who created this mess. The objective, we are told, is to free up funds so our banking system can start lending again.
Don’t hold your breath.
After making outrageously irresponsible loans for several years, (R2) our banks are now running just as fast as they can in the opposite direction.
Banks don’t want to make any loans - unless:
the debtor doesn’t really need the money,
it is very profitable, and
the loan is co-signed by GOD.
Or maybe China.
My son is struggling. Like everyone else. Then he gets a letter from his bank. Despite the fact he has maintained a good credit rating, his prime plus 2 loan, which currently is running around 5.25%, will now cost him 11%. His unsecured business credit card, which he has had for 15 years, will jump from 10% to 15%. Feeling guilty. The bank also offered him a “deal”. A 6 month loan for 3.99%. But (in the very fine print) he has to pay an up front “fee” equal to the loan value times 3%. Let’s see. Isn’t that over 10% per year?
The letter raises several questions. If TARP was supposed to free up bank lending, then how come banks are making it harder, and more expensive, to get unsecured loans? And doesn’t the consumer get screwed twice? Not only is Washington using $$ billions of our tax money to pay for TARP, but we are also being forced out of our unsecured loans by prohibitive interest rates and loan conditions. How the hell does this help anyone?
In the meantime, banks borrow money for 1.5% (or less) and sell it for 10% (or more). Now - there is a nice profit. But this policy raises a red flag. Are the banks doing this because they are insufferably greedy? Or is it because they are in a lot more trouble than anyone in Washington wants to admit?
Make no mistake about it. Our banking system currently wants to stonewall most of the unsecured loan business it has created. That means more expensive credit card, vehicle, white goods, and small business loans. Fees and penalties are up. These increases put an upward pressure on household debt. Higher delinquency rates are inevitable. Tight money means a slower economic recovery. Higher rates of unemployment.
And voter disgust with Washington.
TCE
R1 I think my son is one of the best process engineers on this planet. If it can be done, he can do it. (So. OK. I am biased).
R2 With the full knowledge and support of the Bush Administration and the dimwits in Congress who should have, could have, prevented this mess. But didn’t. For more information, see "Who Do We Blame For America's Financial Mess" elsewhere on this page.
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