Wednesday, March 4, 2009

On "Jump-Starting" Credit

We have again been bombarded in recent days with the announcement of a newly created Federal Reserve lending facility. This Program, we are told, will help "jump-start" consumer lending by providing the markets for securitization of auto, credit card etc. loans with up to $1 Trillion. Receiving secondary attention is the fact that hedge funds and private equity will now be allowed to draw from the Fed's till.

Instead of focusing on whether or not this program is likely to "work", we would simply pose the question of "Is it in anybody's best interest that this program work?". The current plight of the American consumer is well known, therefore we will refrain from listing the numerous reasons that said Consumer is in dire straits. We can however, make the generalization that the most prudent of consumers are in the process of strengthening their personal balance sheets via increased savings and paying down of debt. There are some however, who will never learn, and it is that segment of the population who will gleefully take advantage of any new credit availability. Unfortunately for the taxpayer (who is ultimately liable for losses under the new loan Facility), the Consumer who is still willing to seek and abuse the credit system is also willing to walk away from any newly created debt.
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