Here's What I Don't Understand...

I start with the same proviso as everyone else looking at the bailout: "I'm not an economist, but..."

In honesty, what's happened the last two weeks I've been predicting for several years. I didn't see how it couldn't happen. What our economic engines were doing was creating credit with no assets behind it. Mortgage lenders were giving $200,000 mortgages to people with no possible ability to repay them. Pools of those mortgages were then combined and sold off for even more than the face value they supposedly represented. Institutions purchased portions of those mortgage pools with money they ostensibly had borrowed from someone else. A vicious circle of nothingness. The equivalent of printing money in your basement.

Now, there are no two people in the area of business and economics who I respect more than Warren Buffet and Paul Krugman. And each says America had no choice but to agree to a taxpayer bailout of whomever necessary to free up the flow of credit and keep the economy above water.

But here's what I don't understand. The problem was created by insufficient assets backing up credit. But America is no better off than any of those institutions or desperate homeowners. Our national debt is measured in the trillions already...we've financed our extravagant lifestyles for the last decade or more by selling IOUs to China and other foreign interests. In short, America already can not pay its bills. We are offering more nothingness.

So the problem of asset-less credit being solved by the invention of more asset-less credit works exactly how?

But, like I said, I'm no economist.

UPDATE: Someone saying what I was saying, but much more clearly...