Lower Credit Card Limits: As if the problems in the labor
market, higher mortgage rates and evaporating stock market wealth is not enough,
the limits on credit cards are also being lowered. All of this translates into
weaker consumer spending.
5. Weaker Housing Market: Housing market and stock market
wealth are the single biggest assets for Americans. Tighter terms of credit,
pulled home equity lines and a weaker economy will make it difficult for
Americans to buy and sell homes. There is still a lot of inventory set to come
onto the market over next 12 months. Here in NYC alone, construction projects
are still underway. The problems on Wall Street means that the projects will
either be frozen, prices will have to come down or inventory will end up sitting
on the market for a longer period of time.
Main Street’s Biggest Argument
The biggest argument against the bailout is the cost to the US taxpayer who
will end up shouldering the burden for years to come. This is a legitimate issue
but unless Americans want to fall into a prolonged recession, Wall Street needs
to be stabilized so that banks feel confident enough to stop sitting on their
cash and start lending.
What About Invigorating Main Street Directly?
Directing more money into public works projects could certainly help Main
Street by creating more jobs. Extending unemployment benefits will also make it
easier for out of work Americans, but what Main Street really needs to realize
is that the problem on Wall Street is confidence.
The compromise that is being floated around today is to reissue the bailout
plan with higher FDIC insurance for all Americans. Lawmakers are proposing to
hike the FDIC insurance from $100,000 to $250,000. Everyone wants some
sort of deal to be done and this bribe to Main Street is brilliant because it
offers them a jolt of confidence without having to realistically commit any
additional money. Like health or life insurance, it is there for the peace of
mind.
The 3 big banks that are left on Wall Street - Bank of America, J.P. Morgan
Chase and Citigroup will still be here when the dust settles. The following
chart illustrates the distribution of deposits amongst the biggest commercial
banks in American. According to the data, the Big 3 hold 75 percent of all US
deposits and including Wells Fargo, that is close to 90 percent. So even if the
3 biggest commercial banks fail, the FDIC only has to fork up a limited amount
of money.
