| Avinash_Tyagi said:
That assumes that the banks won't be able to survive the 10-12% unemployment, and that the 10-12% unemployment will alter the number of foreclosures and bankrupticies and spending dramatically over where it is now, and likely a 1-3% increase in unemployment over our current state will not have a drmamatic effect on the economy
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Under normal circumstances a healthy bank should easily be able to handle a very large increase in unemployment, and foreclosures wouldn't be that impacted by modest increases in unemployment ...
The current circumstances can hardly be called normal being that a record number of people are underwater on their mortgages, we have record levels of consumer debt and record low savings; and many of these people will be unable to make payments on their loans immediately after losing their job, and within months will be defaulting on most of the loans and will need to enter bankruptcy. To make matters worse the banks are not healthy and were facing collapse a matter of months ago, and any evidence that the financial sector was in trouble (any of the big banks facing failure) would result in a run on all major banks and could (potentially) push them all over the edge.
The bailout of the banks did not resolve anything, it just bought time for liquidity to recover so that the banks were not at immediate risk of failure; and if any of the big banks are pushed hard enough they will fail. The best analogy I can think of is that the banks are a 500 pound man who had a heart attack and the government put forward $1,000,000 to stabilize his condition ... Without surgery he will probably die, without a major lifestyle change he will probably die, and any minor illness or excitement will probably kill him.
