Consolidate your loans!

Unsurprisingly, this has been a rather tense and tough week in the financial sector. So this post may end up being pithily concise.

This article by David Leonhardt in the New York Times is one of the better analyses I've read.

Personally I'm wavering on the plan. The legislature have done a better than expected job in improving the bill, but I'm very doubtful that bringing these debts onto the public balance sheet is the right thing to do. It would be better, if the damage could be limited, to allow the banks to go bust and the debt to be written off. The plan that is being proposed is the equivalent of taking out a mortgage to pay off a credit card.

In the short term, this may be the only way to keep America solvent. But unless something is done to address the imbalance in what the US economy produces and what it consumes the root problem will only be postponed and eventually exacerbated. But I don't think there are leaders who have the courage to tell American consumers that they have to change their spending habits. So once the immediate crisis is averted I see things carrying on much as before... until the mortgage is foreclosed on as well.

In other words, this plan is only a good idea if someone can persuade Americans to give up their addiction to easy credit in the long term.