If You Give a Bank a Bailout
If you Give a Bank a Bailout, it will probably ask you to leave it alone. It will remind you that it’s a Bank, and it knows what to do with money. So you’ll write a Check and turn your back. And the Bank will redecorate its room.
When you ask it why it refurnished its room, it will tell you that it had to in order to look nice for Investors. And then it will ask you to lower Rates. You’ll ask it why you have to lower Rates, and it will tell you that it’s necessary to restore the flow of Credit. If you mention that the Bailout was supposed to restore the flow of Credit, the Bank will stare awkwardly at its shoes, and mumble something about Toxic Assets.
You’ll ask what a Toxic Asset is. The Bank will start speaking very quickly about Mortgage Backed Securities, Collateralized Mortgage Obligations and Credit Default Swaps. You’ll scratch your head and look confused, so the Bank will try to reassure you. The Bank will tell you that although it’s very complicated, it’s really very safe and provides a very good Return.
You’ll ask how safe, and the Bank will start to blush. It’ll say that it depends.
You’ll ask what it depends on. The Bank will sigh for a moment, and then hem and haw while making vague comments about Over-the-Counter instruments Sub-Prime Borrowers. You’ll ask what THEY are, and the Bank will blush again.
Eventually the Bank will sort of fess up and tell you that those really safe investments might not be so safe, especially if no one is really paying attention to who is on the other end of those Mortgage Backed Securities and Credit Default Swaps. You’ll ask who is paying attention, and the Bank will tell you it is.
At this point you’ll put everything together and ask the Bank the Question its been avoiding: If these Mortgage Thingys and Credit Default Whats-its are safe – so long as someone is paying attention to whomever is on the other end, like the Bank says it has been doing – then why is the Bank in trouble and in need of a Bailout?
When you ask the Question, the bank will turn get angry and start huffing and puffing. It will tell you to stop asking so many questions. It will tell you not to worry about the Past and instead to think about the Present. It will tell you about all the People who aren’t getting car loans and student loans and mortgages. The Bank will tell you to think about all the businesses who aren’t getting loans to expand and grow… or even make Payroll!
The Bank’s argument will distract you and tug at your heartstrings just enough. And when that’s happened, the Bank will probably ask you for another Bailout. And a ride to the Interior Decorator’s on your way out of town to leave it alone.
