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Mike hopes to see the world turned upside down through local communities banding together for social change, especially churches which have recognized the radical calling to be good news to the poor, to set free the prisoners and oppressed, and to become the social embodiment of the reign of God on earth as it is in heaven. He lives with the blessed memory of his wife, in Durham, NC, and has three adult children living in three different states. He also shares his life with the Mt. Level Missionary Baptist Church in Durham, the faculty and students of Shaw University Divinity School in Raleigh, NC, and the faithful fans of Duke and Baylor Basketball in his neighborhood.

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Friday, July 24, 2009

Economic Recovery for All 3: A Bailout for the Few that Did Not Trickle Down

I should mention, with thanks, the assistance of Stephen Boyd of Wake Forest University and Winston-Salem CHANGE. Steve carefully examined the earlier drafts of this document and suggested a reorganization of the material to make it more user-friendly for study.

A Working Paper for North Carolina United Power
from an Interchange Among Theological Educators
July 2009

II. The Initial Government Solution

A. Top-Down Bailout for Institutions "Too Big to Fail"
When the economic situation became too severe to ignore, government officials recommended a massive bailout of major financial institutions. With only a bare sketch of a plan, the engines of government shifted into high gear to authorize transferring hundreds of billions of dollars directly to banks and other financial institutions to prop up their endangered portfolios of assets. "Too big to fail" became a motto for saving the financial institutions that helped to create the collapse, as a way of assuring average citizens that their own economic future was bound up intimately with the success of these mega-banks.

B. Problems Remaining After the Bailout
The purpose of the bailout plan was to stabilize the financial system so that banks would be willing to lend money. Banks and other financial institutions were unwilling to lend money because they could not get a clear idea of the value of the ubiquitous securities intertwined with delinquent and "troubled" loans ("toxic assets"). By lending money, more people and businesses could buy goods and services and fuel economic recovery. However, the banks and financial institutions took the money and held it or used the money for self-aggrandizing purposes. Consequently, the bailout did not have the intended ripple effect on the economy, and it did not pump up the economy.

1. Foreclosures have increased unabated regardless of claims that programs would help people keep their homes.

2. A crisis in credit markets has led financial institutions to rewrite overnight the terms and conditions of credit cards, to the disadvantage and dismay of their customers.

3. Many have found themselves now holding more debt than they can possibly repay.

4. Bankruptcies have continued to increase resulting from credit card debt, mortgage debt, and debt arising from skyrocketing costs of health care and growing numbers of people without insurance.

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