The $700 Billion Toilet Plunger
Using a dual-pronged effort, Rep. Elijah Cummings (D-Md.) and Sen. John Sununu (R-N.H.) allowed Fed Chairman Ben Bernanke to explain his rationale for the $700 billion Wall Street bailout during the Joint Economic hearing underway on the Hill right now.
It's all about keeping credit flowing, Bernanke said.
Cummings asked Bernanke to explain to Moms and Pops in Baltimore why they should be bailing out Wall Street.
Bernanke explained that if the credit crisis is not solved, or at least salved, then small businesses will not be able to get loans, for instance. No banks will make auto loans, either, he said, meaning carmakers will make fewer cars and will have to lay off autoworkers, and so on.
"The credit system is like the plumbing," Bernanke said. "It permeates the entire system."
Sununu asked how Wall Street's distressed securities affect auto loans.
Bernanke explained that for banks to make loans to you and me, they have to have capital on-hand. A lot of that capital was based on home mortgages held by the banks and, once they became delinquent or went to foreclosure, their value went way down.
That meant that, on their accounting balance sheets, the banks have had to write down the value of their capital, which means they won't make any more loans.
And that, to use the chairman's analogy, clogs up the nation's plumbing.
So another way to look at the $700 billion bailout: A really big, really, really expensive toilet plunger.
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