Steadfast Finances5 Examples of Wall Street Trickle Down Effects

Wall Street Bailout Bill: 5 Examples of Wall Street Trickle Down Effects

Filed in Financial Crisis , Market Themes 8 comments

Many people are under the assumption that Wall Street‘s business transactions, particularly the transactions requiring a liquid credit market, have little to no affect on our daily lives.

This is a false assumption.

In fact, so many details of our daily lives are impacted by Wall Street that it is difficult for me to even begin to fathom.  I’m not an economist, nor would I ever choose to be (far too boring), but if you have a job in private industry, chances are pretty high that your boardroom level superiors are spending more time than ever before tracking the daily economic news.

Therefore, one could argue that it’s in everyone’s best interest to take note of this historic financial crisis, and consider the implications of the U.S. Government not stepping up and taking action.  Regardless whether you agree with the so called “Wall Street Bailout Bill” or not, here are a few likely implications of taking no action.

5 plausible scenarios for the infamous Wall Street trickle down effect.

  1. Small business owners can’t secure additional business loans.  The trendy wine merchant down the street from you, which just recently opened up, can’t get a short term business loan to restock her dwindling inventory.  She has little cash reserves, and will be forced to remain in a holding pattern until she can afford to restock.  This could lead to slower sales, laying off employees, or potentially losing her business.
  2. A family owned farm can’t secure credit to buy seed and/or fertilizer. Fertilizer prices hit all time highs in 2008 due to increasing global demand, and with credit markets tightening up, the farmer can’t buy fertilizer.  He takes a substantial hit on his crop yield for the year, which causes his annual profits to be far lower for the year than anticipated.  If this happens on a larger scale, our nation’s food prices will continue to increase because the food supply is reduced.
  3. Student loans become more difficult to obtain.A recent high school graduate can’t get a student loan because there is little to no interest in funding his education.
  4. The cost of low to middle income apartment rentals begin to rise.  Since obtaining a mortgage will likely be more difficult to obtain in the immediate future, first time home buyers with no down payment and average (or below average) credit scores will be denied the American Dream of home ownership.
  5. State and County governments collect fewer revenues from income taxes. While most of us probably wouldn’t cry if the local tax man collected less of your hard earned paycheck, consider the implications of our basic infrastructure deteriorating into disrepair or becoming less reliable.  Constant maintenance needs to be performed on the most basic of services.  Things like fresh water delivery, sanitation, and even waste disposal could rise in cost.  Perhaps the local school systems could suffer as well.  The government pays for more services than you would think.

I’m certain there are far more examples, but these are just a few that display the real world effects on the individual, as well as on the collective.  If you have more examples, please share them in the comment section.

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Posted by CJ   @   1 October 2008 8 comments
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8 Comments

Comments
Oct 2, 2008
3:21 pm
#1 hmmm :

So you believe the potential trickle down effect of having lower state and county income tax levels outweighs the idea of having the federal government spend 700B on overvalued CMO’s?

Which do you think will lead to increased “basic infrastructure deteriorating” Your claim approaches Orwellian status.

Oct 2, 2008
4:20 pm
#2 Matt :

I don’t think I’m anywhere close to 1984 like status. Far different scenario when the government sends us to the salt mines at the hands of the Thought Police versus buying CMOs (which will probably be overpriced) with the intention (stupid or not) of unthawing the credit markets, and throwing Wall Street a lifeline.

But to answer your question, yes I believe the trickle down effects would be worse than 700B on overvalued CMOs. I hate the idea that the collective must pay so much because of the faulty decisions by so few, but we’re basically at a point of choosing the lesser of the two evils.

Doing nothing could be more costly than doing something.

Oct 24, 2008
8:33 am
#3 deedee :

Have you stopped to think about this on a very low level. Customers can still afford to eat out at resturants, where waitresses work for $2.18 per hour, but somehow can’t afford to to tip decent anymore. The waitress has a wonderful drop in income and the increase in expenses. :) It really feels great to sever the realtors who, really didn’t care if the new home owner could afford the home. The commission was most important. We all need to show a little less greed and maybe alittle tree huggin an’t so bad. Democracy: a government in which the supreme power is held by the people. humm

Oct 24, 2008
11:20 am
#4 Matt :

@ Deedee

Another very strong point. Thank you for mentioning it because no one is really immune from a U.S. recession, or a global slowdown in the financial markets.

Just goes to show how a few bad decisions made on such large scale can have such devastating, long term impacts.

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