That magic number, 700 billion to be exact, is getting a lot of attention. But how much is that really? Thinking about quarters? Me neither, but if you were, laying them end-to-end they would circumnavigate the Earth 122 times. But more seriously....
Current estimated US population (US Census Bureau) = 305,244,837 people
$700000000000 / 305244837 people = 2,293.24 Dollars/person
It's a nice chunk of change, President Bush gave a prime time television address on the subject last night. So what's going on?
Ryan recently shared his view of the causes for the problem with his 11 ingredient recipe for financial disaster so I won't go into great detail here. The end result is a lot of companies have a lot of money tied up in things that the market now views as nearly worthless, and that does not create an economy of lending confidence. Now the government feels the need to step in to stop the ripple effect that would be caused by such a massive financial collapse, because the potential to plunge the US (and possibly the world) economy into recession, or even depression, is very real.
The Bailout:
The first reaction of Henry Paulson (Sec. of the Treasury) was to artificially raise the price of all those crummy mortgage investments by purchasing them to the tune of $700 billion dollars (this is thought to be a worst case number, or 5% of the $14 trillion in outstanding mortgage debt). This money is in addition to other government bailouts, including AIG for $85 billion. Paulson, Bernanke, and others are claiming that swift action is needed to stave off a crash.
Add in the pork.
The funding for this bailout would be from tax payers and the sale of government bonds. Of course Congress is trying to tack on as much as they can to this bill and still let it pass - there are even talks of adding oil drilling provisions, adding student loans, and car payments to the bailout. Senator Clinton has proposed that homeowners be added to the bailout because their mortgages are more than the value of their homes and homeowners shouldn't be left "holding the bag". (I'm not a fan of this addition)
During his speech President Bush was in favor of immediate action because it would infuse the market with much needed cash and liquidity. There are a lot of people in favor of this plan - and a lot more against it.
At the end of the day this plan comes down to us taxpayers owning these risky and bad securities and taking them away from the companies. There are talks that later, over the long term, there are still good old fashioned mortgage paying Americans who want to pay the bills behind all this stuff, and some or most of the money will be recovered.
My opinion.
I fear the bailout plan in it's current form is too much - and it would be even worse tacking on all these other earmarks (like homeowners) to the plan. This amount may be required, but it's a huge step and a very scary one. I don't need to understand the complex financial details, but I do need to be convinced that those who are designing the plan and making the decisions are confident that such a drastic and expensive step will work.
There has been a slurry of alternatives suggested by various economists and agencies, including:
Changing the "Mark to Market" value of the mortgage backed securities to more accurately reflect the value of the homes they are backed by. The logic behind this one is that that value of the securities is artificially low (80% decrease recently) while the houses and mortgages that back them are still about the same in value - which is not reflected in the financial sheets. Improving the prices of these securities could stave off bankruptcies.
Another idea is to reduce tax payer liability in this matter by changing the type of loans given out. There would be a profit driven investment fund designed to take on bad debt and provide more cash flow to the market rather than a government entity.
A third (more radical) idea is to take the $700B and distribute it in a "second stimulus" package and letting us infuse the economy with cash. (free cash is nice, but this plan isn't for me)
There are several ideas for alternatives, I am no expert here, I only caution careful consideration.
Most Senators and Congressmen seem to be apprehensive about the bailout plan in it's current form, and voice strong opinions against it. There are also some Senators and Congressmen who are in favor of the bailout plan and stress the need for immediate action. There is a very large constituent reaction to this plan - and there should be - because we are the ones footing the bill and will be directly impacted by what results.
Since the burden of this bailout will be placed on us, I felt obligated to become educated about the issue and voice my opinion to my representatives.
Yesterday I wrote to my local Congressman in the House of Representatives voicing my concerns. I also wrote to my two NY Senators and to the two presidential candidate Senators.
Our congress people are doing a great job voicing the public opinion to Ben Bernanke and Henry Paulson. While I was watching the News Hour on PBS I saw that almost every time congress questioned the plan they mentioned that their constituents (us) had deep concerns. They are listening to what we say and responding to it. This is very encouraging.
You can find out who your local congress person is here, at the House of Representatives government website.
You can also write to your local senators at the US Senate website by selecting your state.
Don't forget that we all have a say here, research, make a decision, communicate that desision - and good leadership will respond to the people's concerns.
Before they act, before it's too late - Make Your Opinion Count.
Resource List:
Contact List:
