Monday, October 13, 2008

Money, Fame and the Financial Bailout

I hosted a dinner party last night with 20 or so friends of mine and, as with most dinner parties, current events came up in the conversation. As we muddled through political woes, national and local, the topic of the economic "crisis came up.

I was surprised to find out that not too many people fully understood the steps that are being taken to keep our nation from moving from the constraints of an economic recession into the throws of an economic depression. More specifically, it was more of a question as to whether or not we here in Cincinnati will benefit from the interest rate cuts announced by the Federal Reserve (The Fed).

Q: So is the bailout another case of the rich people looking out for other rich people?A: Yes and no. With this lower interest rate, banks will begin to lower rates that they offer their customers. These banks will most likely offer lower rates to those who already have good credit.

Q: Will the rate cuts help fix the financial crisis? A: Most likely not anytime soon, but it will eventually. The main reason why the country is in a economic scare is because banks are holding on to their money and not lending to Joe Smo’ around the corner, and the interest rates cuts do not effect that directly.
Q: What exactly is this rate that was cut? A: The Fed cut the federal funds rate, which banks charge each other for loans.

Q: So if these rate cuts aren't going to work, what will work?A: So soon we forget. there was a $700 Billion governmental loan to these banks, purchasing their bad debts and, hopefully, loosening their pocketbooks so that their lending practices become a bit more liquid.

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