This week, the financial system and the unemployed
received help from the lame-duck Congress, while the Big 3 automakers were told "Don't come back until you've done your homework." The FDIC
agreed to guarantee up to $1.3 trillion in loans that banks make one another, in an attempt to continue loosening panicked credit markets. About 1.2 million unemployed workers will receive an extra three months of benefits this year. The extension costs $5.7 billion, although every dollar spent on jobless benefits provides $1.64 in economic benefits because the money is spent, not saved or invested.GM, Ford and Chrysler, on the other hand, presented their request for $50 billion in bailout funds that even supporters such as Senate Majority Leader Harry Reid said the Big Three needed to come back and "...present a responsible plan that gives us a realistic chance to get the needed votes." Most agree with President-elect Barack Obama's plan that automakers must retool to produce energy efficient vehicles. (Source: AP, Bush signs jobless benefits extension
, November 21,2008)
What It Means to You
When the dust settles from this economic crisis, the companies left standing are those that have been smart in planning for the future and using their resources well. Companies, and CEO's, that have been over-leveraged, over-paid and unwise will be bankrupt, devalued or nationalized. CEO's will be paid less, and regular workers will be paid more.
Furthermore, the government investment needed to restore the financial system to functioning will mean more regulation. This will be deflationary, as the excessive high profits that we received in 2005-2006 in our homes and mutual funds aren't likely to happen again. However, it also means that the painful recession that we are experiencing now won't happen, either. Instead, we will learn to live with less things and money, but perhaps more contentment.