Thoughts from a reader regarding the Senate bailout bill now under consideration.
The Wall Street crisis and bailout reminds me of the parable of the debtor found at the Book of Matthew, chapter 18, verses 23-34: A royal servant cannot repay 10,000 talents of silver owed to the King. But instead of forcing him into what would pass for Chapter 11 in those times, the King listens to the plea for mercy and forgives the debt. (Obviously, if the King needed the money, he knew he could just raise taxes on everybody).
Having just been bailed out, the royal servant meets another who owes him 100 pence. Rejecting pleas for mercy and promises to pay the amount, the royal servant has his debtor thrown in prison and threatens dire consequences for the debtor’s relatives.
It seems to me that the credit crisis is already here. If, and when, a bailout happens, Wall Street (and our oversees creditors) wont loan money to business, instead they will invest in Treasury bills. In effect loaning money to the government to pay for the borrowing necessary to pay for their own bailout. And the interest will be high because of the fear of inflation. Wall Street will demand a tight money policy or exorbitant interest rates.
So if the bailout fails we have a credit crisis. But if a bailout passes, we will not only have a credit crisis, but also non-Wall Street America will be saddled with higher taxes, or inflation, to pay of a huge public debt. How will America react when prosperity returns to Wall Street, and a depression hits the rest of us?
And at the end of the parable, the sovereign learns how the royal servant treated the small debtor and decides to cancel his bailout. Will the sovereign people do the same?
-Mike from Davis, CA
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