Are We Safe Now?

On October 13, 2008, the Dow Jones rose a record breaking 936 points in one day, its biggest rally since 1933 and breaking the previous record rally of 499 during the days of the technology boom. This all happened because the government revealed its plan to inject 250 billion dollars into the U.S. banking systems. This plan is suppose to give banks confidence to continue their vital business of lending. However, what does this all mean to the ordinary working person? Are we safe?


The answer is no. We are not safe at all. The market went down 77 points the day after the record breaking rally, followed by another 400 point drop the next day. This means that investors were taking some of the profits to strengthen their books and it also shows that investors do not have confidence in the American economy. Although the government is taking steps to try to restore confidence in the economy, it is still not enough. 250 billion dollars cannot offset the 2.4 trillion dollars that has been lost in the past few weeks. Henry Paulson said that “this will take time and there will be challenges” in the upcoming years and he’s right. The problem with the economy goes beyond that of the banking system. It has become a problem with consumer confidence. This is something that even the best governments in the world cannot directly fix. Unfreezing credit lines is a must to give people the opportunity to borrow money; however, everyone is scared to make a move right now. With their home value dropping, people feel like they are losing their most important and most profitable part of their lives. They stop spending money else where and the whole economy begins to shut down.

Pepsi recently announced their disappointing third quarter earnings and have decided to cut 3,300 jobs. EBay also announced that they would cut 10% of their workforce a few weeks ago. These job cuts show the enormity of this crisis. Unemployment is at an all time high while everything around us is getting more expensive. If the government thinks that spending 700 billion dollars is all we need to get us out of this crisis they need to rethink their plan. There are still homes, office buildings, land and other soured assets that are in tremendous trouble. Moreover, the recent housing boom has created an over supply of homes that will take years to fix. These assets will continue to hurt the economy unless we restore confidence in the consumers and adjust these home values. There will always be ups and downs in the economy, but its how we deal with the problems when its down that shows how strong the economy really is. The United States has taken steps to solve these on going problems, but unless they solve the housing and sub-prime mortgage problem, we will not be safe.