The major investment banks spiral towards bankruptcy weighed down by all the "phantom equity" that was created during the past few years. We've now learned that overnight; the Federal Reserve cut its discount rate by a quarter percent, agreed to provide Bear Stearns Co with $30 billion to back up its liquid assets, and arranged a fire sale of this firm to J.P. Morgan Chase at $2 a share.
This morning investors around the globe were finally realizing that an economy based upon "phantom equity" whereby homes that are overvalued, 2nd mortgages extended freely, credit cards handed out like candy, and consumers struggling to pay their bills with whatever credit comes their way can't survive. Shoring up the financial "company stores" of our nation in the hope that this will allow them to engage in business as usual by lending to a citizenry that is in debt 'up to its eye balls' doesn't address the root cause of our economic malady. The average American citizen needs income in their hands to purchase (consume) not more credit that they can no longer afford to pay back.
Wages for average American citizens have been stagnate or declining depending upon which measure you employ, but what is abundantly clear is that when income is horded by the top 5% of the business elite and 'trickles down' or more appropriately just drips down to the remaining 95% of us you can't expect people to maintain their level of consumption indefinitely.
While it is essential to shore up the collapsing financial "company stores" in order to attempt to maintain confidence in our banking sector it is imperative that the federal government enact legislation that pulls some of the income horded by the top 5% back down to the 95% of average American citizens. To accomplish this the federal government needs to immediately inject at least $800 billion dollars (long-term industry creating targeted investment, not short-term pork) into this economy to stimulate consumption spending by those that consume - the 95% of average Americans that have been keeping this economy from slipping over the edge - until now.
Unfortunately, it is unlikely that this current administration will ever address the real causes of the structural problems that plague our global economy given that their gospel of 'trickle down' neoclassical economic theory doesn't allow for anything approaching reality. They've instilled a belief within the general public that theirs is the only economic approach that exists and all others are simply heresy.
In effect, everyone should prepare for a collapse of the global economy as investors worldwide lose confidence in our dollar and banking system. Eventually, if nothing is done to address the fundamental cause of our current economic problems - not enough income in the hands of those who will consume: be prepared for a global economic disaster.