The Oct. 6 piece, Economy demands time to regulate, not hastily approved bailout"" by Andrew Pichotta misses many contrary economic statistics.
In his article, Pichotta says ""if you ask your [bank manager] if you can obtain credit, you will get the same answer [as before]: yes."" According to the Senior Loan Officer Survey of 60 bank managers, over 80 percent tightened credit for home mortgages and over 65 percent tightened credit card and consumer loans standards since last year.
Next, Pichotta states ""in reality, this is not a crisis"" and scenarios are based ""on an assumption of what could happen"" if the government doesn't act. This could not be further from the truth as the problems are spreading. Home prices, fall at a rate which has declined for 18 consecutive months. Consumers who owe horrendous amounts are unable to refinance their mortgages, leaving one option: foreclosure. During the first half of this year, 2.5 percent of mortgage loans were in foreclosure compared to the 1979-2007 average of less than 1 percent. Furthermore, consumer spending, which grew at a paltry .1 percent compared to last year, is the lowest in 17 years.
The issue with Pichotta's opinion and many opposed to the bailout is they fail to realize the problems in credit markets and housing lead a broader economic downturn. The most widely viewed statistic of economic malaise, the unemployment rate, has always been a lagging indicator of our economy. Unemployment did not peak until a year after the 1990-91 recession and even longer after the 2001-02 recession. Also, government programs have a significant lag between when they are signed and brought into action. Should we choose to wait, the problems will continue to become worse and require a higher tab from our government.
Something needs to be done to help banks extend credit to consumers again. Although the bailout package is not the best plan, it is much better than Pichotta's and other bailout opponent's plan of sitting on our hands while the Dow falls 370 points.
- Marko Lazarevic
UW-Madison Junior
