Change of plans

The strategy for addressing the financial crisis has changed. The $700 billion bailout package will not be used to purchase so-called "toxic assets" linked to high-risk mortgages as initially announced. It will rather target the financial industry which is reeling from problems consumers are having in meeting their payment obligations on their personal debt.

At first glance, the change is welcome, although it leaves a feeling of uncertainty regarding the Treasury Department’s response to the crisis. Nevertheless, situations change and plans do not always provide the desired results.

From the outset, the original idea was set aside and federal funds were injected into the banking sector in exchange for stock. This capitalization did not manage to revive the credit market, because banks did not use the money for that objective. They used these funds to buy other banks and pay dividends, but not for the intended purpose, which was to lend it.

Now the idea is to shore up the financial system, specifically in the credit card and college loan sector, and for car loans. Personal debt has reached record levels in these areas, which have a direct impact on consumer spending. Eliminating pressures is logical, but to work, the consumer must directly feel the federal aid.

For example, it is pointless to give the credit card industry billions if the relief doesn’t reach the users. It also makes no sense to give money away without changing the current conditions of the industry which, thanks to usurious interest rates, has buried its clients in a bottomless pit of debt.

The experience with the banks makes it clear that granting the bailout funds must be accompanied by very specific guidelines for their use. In this case, the question is not how to strengthen a troubled industry directly, but rather, much more importantly, how to facilitate credit and get the economy moving.

The strategy for addressing the financial crisis has changed. The $700 billion bailout package will not be used to purchase so-called "toxic assets" linked to high-risk mortgages as initially announced. It will rather target the financial industry which is reeling from problems consumers are having in meeting their payment obligations on their personal debt.

At first glance, the change is welcome, although it leaves a feeling of uncertainty regarding the Treasury Department’s response to the crisis. Nevertheless, situations change and plans do not always provide the desired results.

From the outset, the original idea was set aside and federal funds were injected into the banking sector in exchange for stock. This capitalization did not manage to revive the credit market, because banks did not use the money for that objective. They used these funds to buy other banks and pay dividends, but not for the intended purpose, which was to lend it.

Now the idea is to shore up the financial system, specifically in the credit card and college loan sector, and for car loans. Personal debt has reached record levels in these areas, which have a direct impact on consumer spending. Eliminating pressures is logical, but to work, the consumer must directly feel the federal aid.

For example, it is pointless to give the credit card industry billions if the relief doesn’t reach the users. It also makes no sense to give money away without changing the current conditions of the industry which, thanks to usurious interest rates, has buried its clients in a bottomless pit of debt.

The experience with the banks makes it clear that granting the bailout funds must be accompanied by very specific guidelines for their use. In this case, the question is not how to strengthen a troubled industry directly, but rather, much more importantly, how to facilitate credit and get the economy moving.

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