The Bailout (with a $700,000,000,000.00 price tag)

Seven hundred billion dollars is a lot of money. 

A LOT of money. 

Here's a couple figures to give you an idea of exactly how much money seven hundred billion dollars is:

- It is one third of the total amount of money received by the federal government in 2007, including social security, income tax, corporate, tax and all other receipts. 

- It is $140 billion more than what has been spent on the Iraq war since the invasion.

- It is more than $1oo.00 for every person in the world.

- It would buy every American 4,586 McDonald's apple pies.

- It would buy out the ENTIRE US healthcare industry (pharmaceutical companies, hospitals, the works).

Let me say it again, $700,000,000,000.00 is a LOT of money. Piled on top of our current national debt, this is more money that we will be able to pay off in a long, long time.

Source: http://www.techpresident.com/blog/entry/30280/how_much_is_700_billion

How did we get into this mess?

The problem we're trying to fix right now, isn't one of bad bookkeeping, or sneaky executives on Wall Street. It's a cultural problem, the American mentality of buy it now/pay for it later. The idea that debt is essential to being financially successful. Americans have been buying more things than they can afford for years. In fact, I just heard today that the average American saves minus 2.5% of their annual income. If this continues on a national scale for very long, you can be guaranteed that a BIG problem's headed your way. 

The symptom of this problem that they're trying to fix in D.C. this week really started earlier this year. With the drop in the housing market, two important things happened. Many businesses built to serve a thriving housing market either went out of business or significantly downsized. This caused a general slump in most areas of the economy. The other important thing was that many people started realizing that the house that they still have $250,000. to pay off on, is now only worth $175,000. It's called an upside down loan, and many people decided that it wasn't worth it and decided to let the bank foreclose. 

Now, banks can expect this to happen every once and a while and they plan for it, but when it happens on a nation-wide scale, it can throw them for a loop. When this is aggravated with the Federal regulations requiring them to aggressively market loans to anyone who can possibly pay them back, you start having serious problems. 

Keep in mind, this is a very simplistic explanation for the current financial crisis. There have been many other factors involved, but nevertheless, the two root problems of this mess have been the American debt mentality, and the over-regulation and involvement of the financial sector by the Federal Government. 

So, what is going on now?

Last Monday, the House of Representatives voted on a bill that would give the Treasury Department authorization to spend around seven hundred billion dollars (but up to $2.5 trillion) on a complete buy-out of all the bad loans acquired by many of the major banks in the U.S. Even though President Bush was heavly lobbying the Reps through the week, they narrowly rejected the bill on a vote of 228-205. It's interesting to note that although the Democrats tended to favor the bill more, the vote was remarkably bipartisan, with Dems and Reps voting relatively equally both ways. 

Today, after significant lobbying from both the White House and both presidential candidates, the bill easily passed the Senate on a vote of 74-25. It is now back in the House of Representatives. Although some concessions have been made to Republicans in the House, such as tax breaks and the like, it's still going to be difficult for the leadership to win over the twelve votes needed to pass this bill. The bailout is mostly unpopular among the public, and only a couple weeks away from election time, many congressmen/women are a bit hesitant to back it. 

Source: http://www.bloomberg.com/apps/news?pid=20601087&sid=aNPG4f5Dlbsc&refer=home

Is this necessary?

Now, I personally am partial to a laissez-fare economic policy, which means that the government keeps its hands off of the economy and markets entirely. However, I also believe in responsibility, that if the government helped get us into this mess, it should help us get out. 

So, is the only option a seven hundred billion dollar bailout? If you listen to the news, or President Bush for that matter, you would get that idea. The fact is that just giving more money to the people that lost it in the first place is only throwing good money after bad. It won't work. You're trying to fix gangrene with a band-aid. You've got to find the root of the problem and, however much it hurts, fix it there not on the outside. There's no guarantee that ten years from now we won't be giving these people even more money once they spend this batch. 

What the federal government needs to is find every way it can to reduce the restrictions it puts on both the investor and the homeowner. Take off the pressure from the banks that forces them to foreclose. Just removing the capital gains taxes from stocks would shoot up the market tomorrow, at no expense to the taxpayer! 

You can look at a more technical, but still simplified, plan that can take the place of the bailout HERE.

Debt is a curse upon a nation, and I pray that the largest spending bill ever seen by this nation will never become reality. 

It's unnecessary.

We can't afford it. 

It won't work.