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A normal loan package to any company in trouble will have many performance requirements and that can be done by the lender, a least by a smart lender. This was not done by Henry Paulson in the loans to banks and that is the same dumb behavior that got us into this mess. So Congress has an obligation to create the terms of the loans, but whatever they do may be vetoed. So it will be up to the next administration.
I and others wrote this before, but it gets ignored. The feds are on the hook for pensions—we have a pension guaranty system that collects funds from companies to pay people their pensions if the company goes under. The pensions are less than they would have gotten. That pension system has not collected enough money, so it has to come out of general tax revenues to pay those reduced pensions. Unemployment insurance would probably have its funds (premiums) tapped out and require an injection of general tax revenues. And, of course, Medicare would be drawn on for more senior citizens. Various tax revenues (sales, property mainly) would drop. More government employees at the state and local level out of work. More mortgage defaults. It cascades. This is what happens in a depression—more people out of work, less products and services bought, more people let go, more bankruptcies.
Then we may go into deflation (we already have that in the housing market) and people earn less, can't pay their debts that they could have a year ago, more defaults, more unemployment. You can say the strongest survive, but plenty of innocent people go down with the weak. And should we encourage the "weak" to live on the streets, go without healthcare, go without food, their children suffering? Is a society that doesn't help the weak survive a morally just society?
The policies of not doing much were pursued in 1929-32 and the situation just got worse and worse. Find a copy of the movie version of "Grapes of Wrath"—it's a pretty good description of what happened to rural America. FDR did a lot, but was too cautious and it took WW II—as Thomas Krugman described it last week, the biggest public works project we ever had—to stimulate recovery. We need something of that scale to avoid a very long recession, panic or depression, whatever you want to call it.
Gene
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