GREENWICH - It is crucial for southwestern Connecticut residents to understand that the Wall Street bailout will affect their everyday lives and businesses as well, according to Chief Economist Mike Darda, of MKM Partners in Greenwich.
As of Thursday afternoon, the bailout terms were agreed upon in principle and lawmakers were hopeful a vote can be reached within days. Financial experts at MKM warn residents to be aware that, unless banks grow capital, there will be a constriction in the credit markets. That can lead to job losses, lower stock prices and loss of household wealth.
?Things are going to be weak for a while. But the question is how much weaker do they get?? asks Darda. ??Let's head off a collapse?- That's what the message is from Washington and they're trying to do something about it. But people have a right to be mad.?
According to Darda, the bailout will not cure the economy overnight, though it should be apparent whether or not it is working from the start.
Darda says the bottom line is the rescue plan is necessary because without it the struggling banks will cut off lending to the average person to make up for toxic loans they accumulated over the years.
?Cutting off borrowers means you're in a credit crunch,? he says. ?If there's no access to capital and credit, this system basically grinds to a halt.?
The $700 billion bailout will allow the government to buy the bad loans and distressed assets from the banks and give them time to regroup and start over.
Darda warns, however, that the rescue package will not bring about a rapid economic rebound. He says the economy is still weak and will remain so at least through the middle of next year.