Spitting in the Wind?

Is It Just Me, or are all the government financial bailouts akin to spitting in the wind?

Billions of taxpayer dollars are being directed toward financial institutions and car manufacturers -- and mind you, while I'm not in favor of government handouts to companies that are in deep doo-doo mostly because of their own actions (or inactions), I'm convinced that the consequences of not loaning this money at this point would be dire indeed. That said, I also believe that it's much like using a sprinkling can to put out a forest fire. Perhaps it will help a bit, but only for the short term. Worse, though, is that it will take years for the positive effects -- if indeed there are any -- to trickle down to the consumer level.

And therein, I believe, lies the real problem. It won't matter much if the Big 3 get their financial houses in order if consumers don't buy their products. Even if financial institutions finally decide to open their newly fat purses and make money available to consumers (instead of using their windfalls to snap up other financial institutions), it won't matter if consumers don't apply for loans to start and grow businesses or buy that new house or car.

At the consumer level, several factors come into play. We all know that the foreclosure rate on mortgage loans is escalating, and if 60 Minutes is to be believed, we're in for a new, and possibly more extensive, round after the first of tye year. Yes, many of these loans never should have been made in the first place; but chastizing the financial institutions for making them and the borrowers for not understanding that their payments could double a few years down the road accomplishes nothing. Instead of taking homes away from their owners, it seems to me a better solution to rewrite the mortgage contract so that monthly increases, if any, are minimal.

Right about the same time, I noticed another trend: people who, by my standards, are quite well off -- and wouldn't otherwise be caught dead in a Wal-Mart -- were starting to not only become bargain hunters, but were taking obvious pride in doing so. It almost seemed that suddenly these folks learned what the rest of us had known for years; it's dumb to pay higher prices for the same items just so you can bring them home in a bag from Bloomingdale's (fill in your upscale store of choice here). Toilet paper? Dollar General. Dockers? Kohl's. The Thanksgiving turkey? a Super Wal-Mart or Kmart or Aldi.

Credit debt is another troublesome area, and the mess didn't start yesterday. A couple of years ago, lender restrictions were changed to allow card issuers to increase the percentage to be paid on monthly balances -- effectively raising monthly payments as much as twice what they used to be (yes, it happened to us). Given that the average household has at least two credit cards, families were forced to deal with an unexpected money crunch long before the mortgage crisis hit. About the same time, energy costs began to skyrocket, once again as much as doubling the monthly costs for home heating and operating the family vehicle(s). It was back then that discretionary income was decimated for many; so why would it come as a surprise that there's nothing left to handle a ballooning mortgage payment?

Now, we hear that new laws have been passed to put the brakes on some of the questionable practices of credit card issuers. To be sure, that's good news for consumers, but here, too, it's too little, too late. I'm quite sure that the laws, which won't go into effect till January 2010 anyway, won't be retroactive. So those who fell victim to the practices that now are illegal won't be helped a bit.
At the very least, why not return the income tax deduction for credit card interest that was instituted during the last recession (and phased out several years later)? That's not a cure-all by any stretch of the imagination, but it certainly would offer some measure of relief for debt-ridden consumers.

Automakers, I believe, have a harder road ahead -- and it won't ease up just by figuring out a way to cut costs. They also must deal with consumers reluctant to buy vehicles from companies whose futures are uncertain. Just today, a report from J.D.Power & Associates determined that unless a stimulus is provided to kick-start consumer buying, carmakers troubles will be far from over. December forecasts show seasonally adjusted sales of 9.8 million vehicles, but Power analyst Jesse Toprak points out that "no automaker can survive as a viable business in the United States if fewer than 11 million vehicles are sold industrywide."

Worse, according to the Big 3's own declarations, more fuel-efficient vehicles are on the way -- but not for at least a couple more model years, and so far not at prices the average consumer will be able to afford (certainly not if the mortgage and credit crisis doesn't let up). In the meantime, why would anyone, even someone who has the money or can get the credit, buy one of the gas-guzzling vehicles now on the lots or that are churned out between now and the time the more cost-effective cars go on the market? Certainly not my family; we'll make do with the car we have (which, although it's a 2004 model, gets more than 30 miles to the gallon) as long as we possibly can.

The same is true for retailers; unless you're 16 years old and a twig, when was the last time you found clothing that would cover the parts you need covered in a department or specialty store? Even if we wanted to part with our money for something we want but don't really need, there's virtually nothing of interest to spend it on. On top of that, the high cost of travel is keeping most consumers close to home. And as long as we're forced to be there, we might as well do our eating and drinking there, too, thus saving the cost of eating out -- another plus.

The underlying problem, though, is that it's hard to lock the barn door after the horse is out. Many consumers now have felt the fear of losing what they have -- whether real or just a possibility. Both they and more affluent consumers now take pride in finding bargains (for years, I've refused to look at any discretionary item unless it's at least 50% off). I've yet to see a shred of evidence to suggest these folks will be willing to reopen their wallets even if there's money inside.

Do I have a magic solution? No way. But I remain certain that unless and until real economic relief reaches you and me, the future isn't very bright.

Or Is It Just Me?