Saundra McDavid

On September 16, 2008 the Dow closed at over 11,059.  On September 17, 2008 Congress passed the largest bailout bill in history, claiming that giving money to large financial institutions would allow them to lend money, which in turn would free up the financial markets and help out Main Street.   On November 12th the Dow closed at 8,282. 

Two months after the Bailout, the Dow is at its lowest point in decades and on Main Street business after business is closing.  As many predicted the bailout did not work as anticipated.  Those colossal financial institutions which were “too big too fail”  used the money for executive compensation, employee bonuses and lavish corporate retreats.  Simply put, the real estate market has crashed, consumers are not spending money and businesses which rely on consumer spending are failing. 

The solution to this problem has been proposed by this author and many others over the last two months.  The solution is not handing out money to the financial institutions whose management has clearly indicated they care more about performance bonuses than a healthy company.  And it is not forcing those institutions to lend money on homes people can not afford.   

Instead, we need to make those funds available to qualified borrowers who want to purchase or refinance their homes.  Some have proposed a sliding interest rate:  three percent now and an additional  one percent each year, capped at six percent.  This appears to be a winning situation for all.  The banks get the capital as loans are paid off, qualified consumers receive a reduced mortgage and thus have more to spend in the market.  Main street begins to see the influx of capital that is necessary for its survival.  The major financial institutions begin to do what the rest of the country is doing; scale down expenses in order to run a business at a profit.  Those that can operate in this new gluttonless economy will succeed. Those that can not will fail.

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