Making sense of bailouts

Nobody likes to admit he’s the stupidest guy in the class, so I’ll go first.

The economy is tanking. We all get that now because we can understand things like a talk with the boss who says “I’m letting you go.” But how did this happen? Why didn’t the media tell us the financial system was failing us? Where were the regulators?

I submit, based on my view from the back of the classroom, that we were told, we just didn’t understand what they were talking about and we didn’t want to admit we didn’t understand what they were talking about.

Case in point: This morning CNBC ran a segment that the prime — as opposed to the “subprime” market, which I still don’t understand — may be the next big problem in the United States. And to prove it, they put up this graphic:

cnbc_prime.jpg

Yes, that’s certainly something to make us all sit up and take notice because — as everyone knows — when prime jumbo securitizations have only 3% subordination to Aaaa tranche, well, do I really have to point out the obvious?

But even if business journalists were required to speak English to us — or we were all required to get a business degree — it doesn’t make common sense.

Case in point: An Associated Press story today says, “Government plans new program to aid credit issuers.” Treasury Secretary Henry Paulson apparently intends to give a slice of the $700 bailout to the companies that jam your mailbox with credit card offers.

Interesting timing because last night I came home to this:

account_info.jpg

They’re getting better at this. Now they make these mailings look like your bill, so you have to open it. And, sure enough, there were checks inside:

bank_checks.jpg

Now, let’s say I wanted to write a check for $100. It will cost me a minimum $10 fee and an interest rate of 28.99%. Last month, I paid off a credit card bill in full and this month I got a bill for another $2.18 finance charge on my zero balance. Keep in mind, too, the credit card companies get a piece of the action from the merchant when a sale is made. If you’re a credit card company, how do you not make money with these things? Moreover, how do you tell an autoworker, his industry is too messed up to get help and tell the credit card company theirs isn’t?

Here’s a way to help the American consumer. Buy each household one of these:

shredder.jpg

And make us pay cash.

Update 9:12 a.m. Secretary Paulson is having a news conference at this hour and says the government is stepping in to help credit card companies — a $200 billion bailout — because consumers are having a difficult time getting credit.


The central bank also launched a $200 billion facility to back consumer loans, including student, auto, and credit card loans and loans backed by the federal Small Business Administration.

Have you had difficulty getting credit or purchasing anything on credit? Or is you reason for not buying that you didn’t want to take on any debt right now? Tell me more. This might be one of those times when “helping” the economy and “helping” the consumer are not the same thing.