With Stimulus Here, Let’s Hope The Fix Is In

Many of us here in the blogosphere know that the banking meltdown was caused by the loosening of lending regulations and the promise of a government guarantee on what has become known as B paper loans. These loans were basically unsound business decisions that never would have been made under the normal lending practices of the time had not the government jumped in and guaranteed the loans. In laymen’s terms, B paper loans were given to people who could not have qualified for the money until the government guarantee changed the formula.

Within a few years interest rates had gone up significantly, the fixed period of the teaser rates on many of the adjustable rate B loans expired and the interest rates on those loans began to escalate. Many of the borrowers on those loans were unable to handle the new adjusted payments and found themselves in default. Suddenly the banks have large portfolios of foreclosed properties and a new position on staff that didn’t exist during better times. Now they have a Vice President in charge of REOs. REOs are “Real Estate Owned” or repossessed properties. These are properties that are just sitting there with no active loan attached to them producing income for the bank, hence they are non-performing assets.

At this point we have our credit crisis, which hit us at roughly the same time that we as a nation were footing the bill for the extended wars in Iraq and Afghanistan. Talk about bad timing. So then the plane that is our economy had its proverbial wing shot off by the two bullets of our credit crisis and high war costs and then started hemorrhaging money—big time. This sent the plane on a downward spiral toward crash city, and the dominos began to fall. The next thing we know we are losing jobs right and left and families are going from deciding what to do for fun this weekend to what regularly scheduled costs can they shave off their budget so they can keep the house without drastically cramping their lifestyle.

The entire country began restricting the way they spend money. Small businesses began losing revenue and began to close. Restaurants, contractors, specialty stores and service providers began having troubles staying open. More jobs lost. Car dealers, theatres and mini malls saw dwindling revenue. Again, more jobs down the drain. Families are left with next to nothing after just paying their bills and buying food. Large mainstay companies like Caterpillar, Home Depot, Sprint and the airlines have massive layoffs. National companies like Circuit City begin shutting down. Where, we wonder will it end? The government decides to do something about it and comes up with the stimulus package.

At first Obama proposes a package that will create millions of jobs in the next few years by building bridges, upgrading our highways, fixing our broken healthcare system, injecting money into ailing state government coiffures, retrofitting our government facilities to be green operations and providing incentive for environmentally friendly energy projects aimed at changing our dependence upon foreign oil for our energy needs. At $300 billion, it seemed to Republicans that the package was too ambitious and represented way too much spending on things that ultimately would not create that many jobs.

At one time the package grew to $900 billion but by the time it was on the way to the president’s desk it had been pared down to $789 billion. Democrats are saying the package is too small and Republicans are still saying this will be too much blind spending to do the economy any real good. (It is interesting to note that the Republicans, who only favored tax cuts as a means to turn the economy around ultimately got over $276 billion of this package dedicated to tax cuts which represents over 92% of the size of the original proposed package.) So now Obama has a bill on his desk awaiting his signature, which he will certainly sign. Shortly thereafter, $789 billion will be on its way into the mainstream of American money thought to solve our problems.

In order for things to turn around as intended it will have to spur more activity than just the projects itemized by Obama in his speeches. Yes, activating all of the previously mentioned projects will certainly get many people working who are currently idle. But for the stimulus to have its intended affect the entire economy will have to be jumpstarted into motion again. That means that when the projects financed by the stimulus package are completed the economy will have to be running on its own well enough for the people who are working on those projects to easily be absorbed back into the economy without the nation suffering a huge jump in the unemployment rate. Let’s hope that this huge spending effort will not only be a temporary fix for those out of work today, but will result in growth industries that will foster a vibrant and growing economy again.