Hagerman & Company, Inc. Technology Bulletin

With apologies to Kipling for the foregoing adaptation of his verse (not original with me) I must observe that the current actions of the Federal Reserve, President and Congress, do seem to indicate that these powerheads have taken this modified verse to heart and joined the Wall Street panic, intent on not being blamed for whatever economic ills may be about to befall the country. Their proposed remedies, however, are unlikely to have any significant impact.

A few facts are important to observe. First, the “real economy” is still continuing to function well. Economists use the the term “real economy” to distinguish everyday business on Main Street from the financial economy, which is based on Wall Street. Everyone knows that Wall Street is in a mess right now, due to a number of bizarre mistakes, including:

	Loaning mortgage money to folks who are manifestly unable to repay the loans or without documentation of their income (so-called “liar’s loans”)
	Using deceitful practices to market the aforesaid mortgages
	Assuming housing prices would continue to rise forever
	Repackaging bum loans and selling to all comers, with credit ratings they didn’t deserve to receive

In short, the real estate party on Wall Street has turned into a major fiasco. Many losses are being reported, with more to come, from the major banks. Some of the largest institutions, having lost much of their capital, have gone to Asia to seek funds to repair the damage.

More important to Main Street, however, is whether all the highly publicized government rescue efforts will do any good, or, in fact, may actually do harm.

Sending checks out to everyone in America, except high-wage earners, seems to be a remedy that doesn’t address the problem. The problem is the bad loans that were made to marginal borrowers, and the resultant credit crunch now that the banks have lost much of their capital.

The payments from the Treasury do nothing to address that. While the citizenry will be happy to receive their checks, neither their economic status nor the overall economy will be significantly impacted.

But, as for the real economy, where does that leave all of us in the business community? We wait to see if the damage done to consumers and financial institutions by unregulated and over the top loan practices results in a slowdown that produces lower sales and profits for our own businesses.

Hopefully, America can survive this debacle without a recession, and businesses that operate on the foundation of actually providing a valuable service to customers, can continue to prosper. We have no particular pity for the financial institutions whose irresponsible behavior has caused the current crisis. They certainly don’t deserve a bailout. At least the checks aren’t being sent to them, although they are actually the ones needing the money.