The Bailout in a Phrase

Essential but insufficient. That describes the $700 billion plan to reflate/liquify the U.S. banking system. I knew that the problems had spread from banks to small businesses when I heard on NPR and read in the WSJ of the same small company in my area which had to lay off a chunk of its workforce for two weeks because its customers could not secure routine credit to make purchases. Now it is the larger economy's turn.

What has happened in this short time has already stripped some gears in a complex economy. Unfortunately, however, the credit crisis is not a problem that is solved by redundant capacity in the economy (like a stroke affecting speech areas, but with other areas of the brain picking up the slack, for you medical types). Rather, this is the economic equivalent of hypovolemic shock, when the body, as a result of an accident, had lost so much liquid, circulating blood (from the housing fiasco) that end-organ damage has occurred because of hypoperfusion of all of the organs (e.g., businesses), despite restitution of circulation through a late transfusion.

The kinetics are a bit like the gas shortage we experienced last week. The closure of the refineries by Hurricaine Ike was only temporary, but the effects rippled through to the plastic-covered gas pumps in the Charlotte area long after. Regardless, I'd rather ride my bike to work with no gas than to be the brave person running a small business for the next one to two years.