Bailout.

One of the most inflammatory words in America at the moment. So inflammatory to some Americans that it has congress knotted trying to figure out how they are going to pass an unpopular bailout plan that their constituents adamantly don’t want to happen. Wall Street is floundering and our economic leaders who told us for the last year that everything was not that bad with the economy are singing a much more serious tune. Pundits are throwing around disaster words like armageddon. Welcome to the last year on Wall Street that has been roller coasterish but ‘armageddon’? Hang tight on that level of hyperbole.

Federal Reserve Chairman Ben Bernanke is now making grim statements like this:

In his most stark assessment since the credit crisis exploded 13 months ago, Bernanke said Congress must move quickly "to address the grave threats to financial stability that we currently face."

Presidential candidates divided on whether or not to have debate this Friday

Senator John McCain is trying the unprecedented move of suspending his campaign and postponing this Friday night’s debate so he and Senator Obama can go back to Washington and try and help come up with a solution for fixing the bailout impasse.

My translation: see what souls can be sold to get the bailout plan to go through.

Obama wants to let the debate show go on. He feels, correctly, like a president will be expected to juggle many balls while running the country and why should the show stop? In McCain’s defense, it could be argued that the country hasn’t faced anything economically like this in some time and if I was in his shoes, I’d want to be knee deep trying to hammer out some viable solution not on the campaign trail.

But let’s return to the title of this post, are economic times as bad as they seem? Is this bailout the only good option as being presented?

The New York Times has an interesting article on how Sweden dealt with their economic problems in 1992:

Sweden did not just bail out its financial institutions by having the government take over the bad debts. It extracted pounds of flesh from bank shareholders before writing checks. Banks had to write down losses and issue warrants to the government.

President Bush is making a speech tonight at 6pm PST / 9pm EST with what appears to be the intention of selling this bailout plan to the American people. Having the nations most unpopular president in a long time speak trying to convince us how important this bailout would be for the economy is curious, but not sure it will do that much to make people feel any differently. History could find this to be one of the most important speeches George Bush makes over his time in office, maybe the most important speech of the last 20 or more years. Will he screw it up? I’ll update this post after watching the speech with my thoughts.

So I’m against the bailout, you?

Unfortunately I believe there will be one, whether we like it or not. One of my major concerns is what happens next? If the thought that we are in economic ruin if we don’t do this bailout now, what do they say next time when somebody else steps up to the money line with hands out? If the gun is to our head now if we don’t do this, will there be another gun next time? I hope there isn’t a next time like many others, but I’m skeptical. Very skeptical.

The market over the last year has been a series of it goes down, the Feds lower interest rates, it goes back up for a short time. Then there is some negative announcement or pundit prediction of gloom and doom and the market goes down again. Feds step in by making the interest rate lower.

Somebody somewhere needs to say enough is enough

Letting companies go out of business that make bad business decisions is the way it is supposed to work. I understand the government was partly to blame by forcing lenders to make loans to people who couldn’t afford the terms, but it’s time for everybody to come clean about the dirt on their hands and let the market correct itself.

I realize not doing a bailout will have economic consequences, perhaps even in my own backyard, but I’m more worried how far we have already fallen down the slippery slope by reacting to what the nameless, faceless mob of the market demands and pressures.

If the market is based in great part on speculation, then it’s time the government makes the speculation a little easier. Saying "no" to helping Wall Street banks, giant investment firms, insurance companies and the like doesn’t seem that challenging to me. Sort of like the whole "we don’t negotiate with terrorist" spiel that we see in Hollywood depictions of government.  You made a mess, now go out of business and let some other private business step in and service your customers. I bet some other business can do better.

The whole notion that a company — any company — becomes so large that the government (which in America boils back down to the people) must step in and help that company avoid financial ruin is absurd to most hard working American people. Helping people after hurricane Katrina who lost their homes seems a thousand times more important. And yet if you talk to people who have been to and/or know people who live in New Orleans they say that situation is still a mess. The government needs to stay out of this. I fear the worst the more Government becomes involved in anything financial. And you can go pretty much down the line on that one:

• the war in Iraq. Costing us billions per month. You can get the javascript code to show this war cost in real time. It’s eye opening.
• national debt management. What’s that under Bush’s regime? We continue to make more debt, not manage any significant amount of our existing debt. Do we not care at all for future generations?

No means no

If by standing firm and saying no that means it will be harder to get a car loan or home refinanced, so be it. Sometimes we have to spread the pain around. I can handle being a little more hassled over the next loan we might make in exchange for bankrupting our future. What about you?

Update 8:29pm PST (following President Bush speech): Bush looked tired delivering an all too familiar fear speech tonight. Just roll him out and have him scare everybody on any subject: terrorists, 9/11, weapons of mass destruction or the economy. He said nothing that moved me in any way on this issue. Another opportunity to do something meaningful in his presidency that turned out flat.

On an educational note, if you are trying to wrap your mind around the sequence of events that led to this mess, financial website Kiplinger shares an informative list.

Did this post make you go hmm?

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