I am just so thankful that people like Robert Reich exist...
Robert Reich on Marketplace--9/24/08
The giant bailout of Wall Street assumes only a certain amount of bad debt is left over from the days of lax mortgage lending. And once removed from Wall Street's books, credit will flow again.
Wrong. Bad debts are growing, and they're coming even among people recently considered good credit risks. At the end of August, 6.6 percent of mortgages were at least 30 days past due. That's up from 5.8 percent at the end of June. We're also seeing a growing amount of credit card and auto payments past due.
The culprit isn't just those subprime loans. With jobs and wages dropping across America, many people who had been able to pay their bills, no longer can.
It's no coincidence that states where mortgage delinquencies are highest are also states with the highest rates of job losses. The official rate of unemployment in California, for example, last month was 7.7 percent. That's up from 5.5 percent a year ago. No surprise that bad debts are mounting fastest in California and elsewhere around the country where jobs are evaporating fastest.
These are just the official rates. Some 600,000 fewer jobs are listed on the nation's payrolls than were there last year. Millions more Americans are too discouraged even to look for work. And as employers squeeze their payrolls, even people with jobs are putting in fewer hours.
Bailing out Wall Street's bad debts when millions more Americans can't pay their bills is like bailing out a rowboat springing more leaks when the ocean is rising. Many of the average taxpayers being asked to take on Wall Street's bad loans are the same people whose incomes are dropping, which means they're struggling to pay their debts and potentially creating even more bad loans.
Congress should drive the hardest deal it can with Wall Street, but also needs to pay attention to Main Street. Extend unemployment insurance, freeze mortgage rates, and pass a stimulus package that generates more jobs.
Unless Americans on Main Street have more money in their pockets, Wall Street's bad debts will continue to rise.