Why must the bailout plan be passed? Because if not, then banks will be saddled with non performing assets and will not be able to lend. If they are not able to lend, then how will businesses fund their activities? How will they meet working capital needs? How will they pay their suppliers? It will take them a long while, many, many years possibly, for most affected banks to generate the capital required for them to become profitable again.
But a few questions still need to be addressed. What will the Treasury do with this assets? How will they sell the assets? What will make these assets profitable enough for these to be sold off? When will that happen? How will those profits be transferred to the tax payers? How will this bailout plan help banks and the economy specifically i.e. will banks be able to get back to business as usual? What is business as usual?
What does all this mean for the future?
Asset values will take time to recover. The housing market will rebound in two years. People in the US will continue to live off cedit and borrowings. While the Dow will not reach 14,000 yet, it will cross 13,000 by the end of 2009. Banks will grow slowly. Their loan portfolios will be more carefully managed. Compensation of executives in the financial markets will be linked more closely to performance, with a larger portion coming through variable pay. Overall economic growth will be slow.
But the position of the US as the hotbed of innovation around the world will not change. VCs and entrepreneurs still see opportunities in this country. The west will continue to drive growth. The country's universities are thriving with innovators, entrepreneurs and visionaries. As long as these young people remain foolish and brave, America will be rebounding very soon.
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