Decision on bailout is a tough one
September has not been a good month financially.
We’ve seen the failure of major banks and companies that we didn’t even realize were in trouble. We’ve heard stories of people rushing to banks to close their accounts in fear of losing everything. Finally, we’ve seen the legislative and executive branches of government scrambling to prevent the entire financial system from crashing.
I’ve gone back and forth on my opinion of President Bush’s proposed “bailout plan”. Like many Americans, I’m somewhat ignorant and don’t fully understand the financial system of the United States.
On one hand, I feel like the tables have turned on the banks. They’ve been ripping consumers off for years and now karma has come back to bite them in the backside.
On the other hand, I realize that without some sort of intervention this “financial crisis” will turn into a “financial disaster.”
I still don’t lean one way or the other on the issue, but I do have several thoughts about the bailout.
For years, we’ve been told as consumers that we should be cautious about using credit. Financial and economic advisors have told us to be frugal about borrowing money and to avoid accumulating large debts.
We’ve also been told to make wise investments, making sure that we are clearly aware of the risks of any investment and realizing that there is a risk of losing the entire amount invested.
What the government will essentially do with this bailout plan is “borrow” up to $700 billion from taxpayers to purchase bad debt from banks. The belief is that eventually investors will purchase these debts and a profit will be made.
Let’s stop for moment and think about this. We’re going to borrow billions of dollars from taxpayers and use that money to invest in bad debts.
The government is not only borrowing $700 billion—a massive amount—but we’re going to take that money and invest it in bad debts—debts that banks have been unsuccessful in collecting. Doesn’t this go against everything advisers have been telling us?
Not only is this hypocritical, it sets a precedent that we won’t be able to follow in the future. After all, we can’t have a bailout plan every time the economy takes a turn for the worst.
And speaking of precedents, what kind of lesson will this bailout teach our future generations? Are we teaching the future leaders that we shouldn’t worry too much about financial security since the government will step in and rescue us when we’re in trouble?
It’s also interesting to me that we are unable to find enough money to properly fund education programs and provide welfare to those who need it, but we’re able to come up with $700 billion to rescue failing businesses.
One question that still hasn’t been clearly answered about the plan is what will be done with the profit, if there is any. Will the money come back to taxpayers or will it be funneled into some other government program?
Another aspect of this plan is that it’s a slap in the face to those affected by events like the ENRON scandal. Millions of people lost millions of dollars in 2001 when ENRON collapsed. For those who lost most of their retirement savings when the ENRON scandal occurred this must feel like a double betrayal since the government never stepped in in that instance.
If there’s anything we can determine from the crisis, it’s this: Bush’s economic rescue plan didn’t work. If it had, the economy would have begun to recover and we wouldn’t be in this mess.
As I said before, I’m no expert on the financial system of the United States. I’m not sure whether I agree or disagree with the bailout plan. What I am sure of is that only time will tell whether we are making the right decision in this matter. Until then we can only cross our fingers and hope for a miracle.
Latest Comments
- Reno 911! bad boys bust Corky mascot - 1 comment
- P.R.I.D.E. speaks out about Proposition 8 - 3 comments
- Professional athletes deserve high salaries - 19 comments
- Speaker gives insight into drunk driving, injuries - 2 comments
- Marketing Club gets sneak peak of ESU commercials - 1 comment
- Faculty Profile: Dipak Ghosh - 1 comment
- Shopper explains convenience, hatred of Wal-Mart - 15 comments
- Four-year college programs unrealistic - 20 comments
5 Responses to "Decision on bailout is a tough one"
September 30, 2008 9:45 pm
October 1, 2008 12:18 pm
October 1, 2008 5:26 pm
The current financial situation has many players, but the beginning goes back to the Community Restoration Act (CRA) of the Carter administration. Under this act, and the continued mutations of this act over the years primarily driven by Clinton, banks were forced by regulatory blackmail into underwriting mortages to communities that did not legitimately have the resources to pay these loans back. Organizations such as ACORN and NACA (yes, the former is the organization that Mr. Obama used to/currently worked for/supports) were the tactical organs which facilitated these loans as well as strong-armed the banks to make these loans, read "donations" or "bribes" to these communities. Banks were not lending to these communities because of any type of bigotry, they were not lending to these communities because it was not financially feasible. By the way, ACORN and NACA were provided "fees" for facilitating these transactions, amounting to about 1% up front...they were not vested in whether or not these loans were paid off successfully.
Moving forward a few years, the burden of these ever increasing "sub-prime" loans on these banks were becoming unbearable finanacially to these private companies. To keep the system running, Messr's Clinton, Frank, Dodd, et al. in the congress facilitated the assumption of these loans by Freddie Mac and Fannie Mae, and when they were unable to under the rules of the charters of these two GSE's (Government Sponsered Enterprises) to absorb all of the paper (loans) that were coming in at the original 10:1 leverage ratio, they increased the ratio to 39:1...this means they only had to have $1 in assets for every $39 of liabilities that they assumed. This is like speeding down a hill in a car with no brakes...and what we are feeling now in market is the car crashing.
In 2004, there were hearings regarding the impeding implosion of Freddie and Fannie. During these hearings the Republicans brought out the auditor for these institutions to testify that there were problems and oversite was needed...the Democrats mocked the auditor and said the Republicans were grandstanding over something that was not in trouble...
If you are looking for a political scapegoat, consider the following, which can be independently verified:
1. What political party were the CEO's of Freddie and Fannie a part of? Democrats.
2. Who got the vast majority of political donations from Freddie and Fannie? Democrats (the Senator that received the most in the last 3 years was Obama)
3. How many millions did each of these Democrat CEOs take home last year while they doctored their books knowing that the end was fast approaching? One received over $60 Million...that I am sure he will not be required to repay.
4. How much of Freddie and Fannie's debt is owned by foreign countries? About $600 Billion...the bailout is not going to Americans, it is going to these foreign governments that lost their asses on these two entities. The bailout is going to pay these foreign investors off so that they continue to invest in the U.S. If we do not pay the Europeans, Chinese, Saudis, etc. back, they will quit lending to us and you will see the bankruptcy of the U.S. and our fat and happy lives as we have come to obliviously know them will cease...and this is not hyperbole.
So as you can see, this is different than Enron. It is very unpalatable, but we have been put in a position rooted in a policy based on emotion rather than practical business sense by a particular political party, and we will all be paying for it for a long time. This is a timely matter that will affect all of our young people and their standard of living, and a question to consider throughout our lives: Do we choose socialistic policies that always (yes, always) end up bankrupting a country, or do we require personal responsibility knowing that all men are created equal, but don't end up staying equal due to the decisions they make in their life.
It is the law of nature and it can not be broken without consequenses.
Something to consider during this election season.
October 2, 2008 10:33 am
October 2, 2008 6:19 pm