Yesterday night the Senate passed the new version of the $700 Billion Bailout Bill. Though I haven’t been keeping up with the news and my blog reading as much as I usually do, it’s hard to miss the fact that this bill is a bit controversial.
I’ll be the first to admit I’m better at personal finance and frugality than I am economics, but I’m not a fan of a bailout. (Or rescue plan, as it’s now being billed.) It seems to me that we’re sending the message that companies can take outrageous risks, and if they don’t pay off, the government will come to the rescue.
My other fear is that rather than fixing the problem, this bailout will just postpone the real consequences of bad decisions that were made. And rather than paying for them now, our children will have to pay the consequences later.
And the third problem I have is where does the money come from? More borrowing against future taxes? It seems to me that borrowing more money doesn’t really solve a debt problem.
Again, I’m not an economist, and I don’t know as much about this bill as I probably should. But since it’s so controversial, I thought it would make a good conversation in the comments. But before posting, please no personal attacks on anyone…commenters, politicians, or anyone else. Everyone has a right to their opinion, and I don’t see this as a democrat/republican problem. There are people from both sides of the aisle on both sides of the issue.
That said, what do you think of the bailout?
If you enjoyed this post, make sure you subscribe to my RSS feed!
{ 37 comments… read them below or add one }
Now the Senate has passed a bail out, we must come up with an implementation plan that spends less and does more than the proposed bailout. It must protect the healthy organizations first.
Check out the Stone Plan. I hear a new updated version is coming out today.
http://politicalcivility.com/b.....n-bailout/
I don’t like the idea of a bailout either. It’s not helping out any individuals who are at risk of losing their homes or of bankruptcy. From what I can tell, it simply rewards these corporations who gave fat paychecks to unscrupulous CEOs and took risks hedging on consumer spending.
I am responsible with my money, and my family spends less than what we earn – we SAVE! So why should I be punished for taking responsibility for my own finances, by being forced to fund this bailout which I don’t agree with?
I say, go ahead and let these companies fail. We don’t have $700B to float this venture. No one has explained where this $700B is going to come from. Will it come from Medicare, or Social Security, or Homeland Security, or Education, or where?
I’m not an economist either, but I do know how to balance a checkbook and live within my means, which is more than it seems like some can do!
That same $700 billion bailout could have been returned to taxpayers through a homeowner tax credit for those holding a primary mortgage. Rough math estimates it would have worked out to around $20k per mortgage. Not much, but it would have cut out bailouts for industry executives, buying bad debt, etc. And it could have provided relief to those upside down and/or behind on their mortgages.
Without this rescue plan, things would certainly get worse – much worse – before they get better. With this plan, however, I think we’re taking the first step in changing the basic tenets of our democracy.
We – me, you, corporations – should have to live with the consequences of our actions. It’s the only way to true growth.
Lynnae, I absolutely agree that this shouldn’t be a Democrat/Republican issue. There’s too much finger pointing going on, and there’s plenty of blame to go around.
I’ve been reading a lot of theories from various economists about the bailout, and I have decided I do not agree with it. One problem I have is that there is a lot of talk about tax breaks and provisions to help the public stay in their homes. I’m very skeptical that this bailout is really going to do anything to help “Joe Smith” down the street whose home is in foreclousure. Call a spade a spade and don’t sell a solution to the public on help that may never come.
My husband and I live very frugally, well within our means. Why should we be required to bail out (1) greedy managers who threw common sense out the window, and (2) people who live beyond their means? People have got to learn that just because the bank says you can have the credit doesn’t mean you can afford it. And these companys have got to be held accountable for their poor decisions. If we have a depression, so be it. Everyone will emerge stronger and wiser.
I am very, very much against this boondoggle for a number of reasons:
1. It will violate contract law by allowing the administrator to change the principal amount, interest rate, and term on mortgages for those who are unable to pay their current mortgage. People who bought too much house will be rewarded and the taxpayers will be responsible for any losses incurred. I don’t know, but doubt, that the owners will be required to split any profits on their future home sales with the government if their mortgages are modified.
2. It socializes losses and privatizes profits.
3. It contains all types of rewards to get votes. Better mental health benefits (which we may need when we start paying for this bill), tax credits for movie makers, etc., etc.
4. It MAY result in “profits” when the assets we are buying are sold, although I doubt they’ll be used for future deficit reduction; I fully expect the government will simply spend any “profits” on their favorite little (or big) projects in the future.
5. Most importantly, it does NOTHING to correct the problems that got us into this mess in the first place! The Community Reinvestment Act (CRA) will still be law, the requirements that banks lend to people who do not have the financial resources to pay for their homes will still be in place, and banks will still be threatened with lawsuits if they do not lend to these people.
There is a problem and it does need to be corrected, but this is NOT the solution. Why not lend the money to the banks to handle the current liquidity issue? Repeal or modify the CRA? Homeownership (or ownership of anything for that matter) is a right that is earned, not a privilege that can be given. I do not believe this will work and many top economists agree with me. I’ll be calling every Congressman I can today to urge them to vote No on this bill.
I think this quote sums things up very well…
To contract new debts is not the way to pay old ones.
GEORGE WASHINGTON, letter to James Welch, Apr. 7, 1799
And one other final thought, what if the banks can’t pay back the government?
I don’t like the bailout either… it reminds me of watching the Mississippi flood this summer… sure, you can shore up the levees in one town, but what does that mean for the next 3 towns down river? It’s just diverting the flow until it can find an outlet somewhere else in the system, if there’s a bust coming, and this part of the market is shored up, it’ll look for the next available path of least resistance. They can’t patch all the holes, at some point it’s going to have to be allowed to do what it’s going to do and something is going to break down somewhere.
Just goes to show the American way is true: Live above your means. It seems that they’re promoting this way of life. In all honesty, though, it really doesn’t effect me right now, but I am sure it will down the road when I go an apply for a home loan.
This is the first step towards the US loosing its status as an “economic superpower.”
I’ve started to look at our government as a person. Right now it has over $10 TRILLION in debt. Add to that almost another TRILLION from the bailout and we’re up to 82% of GDP! Don’t you think that sort of debt/income ratio is a little high?
Why doesn’t someone in Washington care about this?!
Change needs to happen, but only the type of change that will lead to a surplus over the next 100 years so we can reduce our debt.
Can you imagine the strength of the dollar if we could start reducing our debt and stop producing currency to cover our appetite to have everything?
It blows my mind.
Sorry for the rant…
I think the bail out is a bad thing. It takes money from the taxpayer. The taxpayer is having enough trouble holding onto their houses as it is, and with more money out of their pockets, they’re going to have even less luck holding onto their houses now. And that won’t help the economy.
“2. It socializes losses and privatizes profits.”
I totally agree. I just want to know where my bailout is because my Roth and mutual funds are down? They are trying a trickle-down effect here and it won’t work. It doesn’t fix the problem that started this meltdown in the first place–people buying more house than they could afford and then people betting things would keep getting better. It doesn’t stop the fact that mortgages will still default and houses into foreclosure.
I hate it! I’m moving to Canada! =+)
I must be the only person that agrees with this bailout. It is not ideal, and in a perfect world we would not need it. Right now, we need it!
I absolutely do not agree with the way CDS (credit default swap) was handled since its conception 14 years ago but, there was no regulation to it whatsoever. Beginning in Jan. 2009 there will be some regulations put in place to keep this from happening again. It should have never happened in the first place but, IT DID. That being said, To not approve the bailout means too many jobs lost to even fathom. A full blown recession. More jobs lost, more homes lost, and a continued spiral downward. I don’t care how frugal somebody lives, they will eventually be affected. It is not time to point fingers and say what should have/ could have happened. It is here NOW and something has to be done about it to stabalize the US and world economy.
“Mr.” Being Frugal here,
This is difficult. On the whole, I don’t like the message this sends. If I truly thought it wouldn’t take us down a slippery slope, I’d be more inclined to say “Just this once. Learn your lesson and don’t do it again.” The problem is that most of the people who created this mess won;t be around, and I fear a future generation will have to learn this lesson all over again.
By the same token, I’d be equally concerned by our economy being frozen into paralysis. In the Warren Buffett investment into struggling giants, we may find a model for rescue (perhaps) that doesn’t include the government and you and me subsidizing the so-called rescue.
This whole mess is shameful and says a lot of sad things about how people live.
Long Live Frugality!
I am not a fan of the bailout either because it simply masks the problem, it doesn’t solve how we got there in the first place. It is similar to those who undergo weight reduction surgery but never change their eating habits. The weight is gone for awhile but the old habits are still there and eventually the weight comes back on.
This bailout problem is simple and politics make it messy. There are consequences for your actions, and you must pay those consequences. Then you get yourself back up, and learn. If I am rewarded 700B every time I screw up, where is the lesson learned?
I’m a little worried about one thing–what about ‘our money’? How many of us have savings and a 401K? what if–what if– this gets so bad that the FDIC can’t handle it anymore? And what if–what if– some of that money these banks have played around with is ours? Since I don’t know–and you couldn’t get a straight answer from a politician at gun point–well–I think maybe it has to be done. I’m not happy though.
Continuing the levee analogy that was raised… don’t we want to divert flooding from major cities? What is the cost of building a strong levee vs. the cost of rebuilding a major city? The physical world has already provided the example for the financial world to heed. We need to be frugal but not cheap.
I’m not a fan of the bailout. I find it really frustrating that this administration would ask for so much after so many years opposing sensible regulations. I like Frugal Dad’s idea! At least some money should go to people who have been hurting in this economy for years.
It seems like our options are somewhat limited at this point, and none of them look too good. Maybe this bailout is the best we’ve got at the moment. I don’t know. But, I wish some of the other ideas being put out where given more consideration.
This could be a very interesting election. We have gotten a stark and painful lesson in the governments role in this. It’s been a very long time since I’ve seen voters this angry this close to the election (my first vote was in 1968).
If this seems like a personal attack, I apologize. It was not meant to be one.
Consequences.
Without them, there is little reason to ‘behave’ financially.
So, no, I’m not a fan of bailouts. It seems to slap those in the face who DO play by the rules, by letting those who chose to NOT play by the rules get by, and even rewarded, for not playing by the rules. It takes the incentive out of doing ‘the right thing’. IMHO
The bailout is also unconstitutional…it puts ONE guy in charge of it…with no checks and balances.
How about if they cut the capital gains tax out period, and cut corporate taxes in half…we’re the ones paying them anyway. I’ve heard more economists and financial people saying that doing that will rebound by Christmas.
And the senators responsible for delaying and refusing the regulation, auditing, etc need to be held accountable.
Education and social services have been struggling financially for years, but there was there was never enough money “in the budget” for either of these fairly worthy causes. Now,when big business, with all the appropriate cronies, is in trouble, suddenly, there’s funding to be had. I’d like to say I have faith this is going to work, but I have to agree that it doesn’t fix the underlying problem. Sigh.
I’ve my fall/winter gardens planted all around my yard, including the front yard, and we’ve been canning like fiends.
Just in case.
Hooray for winter gardening :)
I’m trying Miner’s Lettuce and Vit (Corn Salad) as well as Swiss Chard (which I know will grow all winter here) We’ll see if my scarlet runner beans are really perennial or not.
I just wish Congress would “Do it” or get off the fence… this hem hawing around is making it worse. One way or the other, and soon, hopefully, then we will all know which direction will take us back to basics! And can adjust accordingly.
What about all those who knew this day of reckoning was coming yet chose to collectively bury their heads in the sand until it became a huge crises?
This “bailout” plan is bad news for everyone except those who will stand to make even more profit from it at other people’s expense.
Didn’t take long for it to trickle down to my family; my partner is on “forced vacation” for the next two weeks. If he’s not called back to work, then it’s unemployment time.
This “bailout” is going to benefit people like me how?
It’s nice to see that I’m not off base and alone in my way of thinking.
@Sean, to continue the levee analogy, I fear we are not building a strong levee, but a flimsy one, and in the end we’ll end up paying for the levee AND the cost of rebuilding the city.
@ML, I am so sorry to hear about your husband’s forced vacation. I pray that it doesn’t become permanent.
The bailout plan is to me the typical American response to things nowadays…quick, fix the problem with more debt…keep our lifestyles going no matter what the cost…worry about it in the future. Saddle our children and grandchildren with more debt and problems to deal with. It disgusts me.
It’s not just the fatcats’ fault…it’s ours too for letting it happen and for living beyond our means and making credit a way of life. With a society built on credit, and at trillions of dollars worth of debt by now, this was bound to happen. What i don’t understand, is that we have all these supposed smart people and not a single one saw this coming?
We will either have to change our way of life as a nation, the way we do business or go the way of the Roman Empire and now make room for the Chinese or whoever tries to step in as superpower next…the Romans thought they would last forever too…
Kim and Military Wife, I could not agree more. And sadly, I’m sure some of these “smart” people saw it coming. However, saying anything about it was probably bad for their political careers, so they did what was best for themselves in the moment and chose to ignore the warning signs.
Amen! I completely agree. I’m no economist either, but this feels like a really bad idea.
Here’s a 1999 article from the NY times that explains what caused this mess and even predicted that a bailout would be needed!
http://query.nytimes.com/gst/f.....=permalink
I have heard many people citing this New York Times piece, and others, that blame the Community Reinvestment Act for all of the financial problems we’re now experiencing. Some facts: The Community Reinvestment Act (CRA) has been around since 1977 and was revised in the 1990s. After the revisions, 50 percent of the subprime loans were made by lending institutions that did not fall under the regulation of the CRA. Another 25 percent of the loans were made by banks and subsidiaries that only partially fell under the CRA. That leaves 25 percent of subprime loans that were made under CRA. Furthermore, lending institutions that were not regulated under the CRA were twice as likely to make subprime loans as the regulated institutions.
It is far too easy for Republicans to point the finger at the Democrats and blame this mess on the CRA. Likewise, it is far too easy for Democrats to blame the Republicans and de-regulation. Everyone is to blame because many, many people watched what was happening and let it go on. It’s time to stop finger pointing and start working together to make sure that this never happens again.
This was a great post! There is so much turbulence in the market today, and people need peace of mind more than ever. I think the its going to take time before we can see what’s going to happen with the bailout. I hate the idea… but maybe it’s what we needed. Maybe not. Only time will tell. I wanted to offer your readers a link to another blogger who is doing great work. He writes about our ‘childhood money messages’ and how the best approach to stability in today’s market is to resist letting these emotions control our buying/selling habits. It is really fascinating work, and something you should all check out. His name is Spencer Sherman, and you can view his blog at http://www.curemoneymadness.com/blog.
I think they should send the tax payers the money instead! This bailout amounts to a lot more than the pitiful little stimulus check they sent us over the summer.
I see a lot of people asking where the money will come from. There is a very simple answer. When the government needs money they go to the Federal Reserve (a group of privately owned banks). Where does the Federal Reserve get the money? They create it. If they create too much it causes inflation. Everyone pays for inflation. So in a sense everyone is paying for the bailout.
On another note, The Federal Reserve just loaned $1.25 Trillion to failing entities. http://www.jsmineset.com/ARhom....._ARID=6728
I wasn’t for it. It’s just a band-aid on large cut. Americans need to make some hard decisions,start living within our means,save more,grow you own veg.
My mother still reminds me to “waste not, want not”
We’re trying to walk the walk, not just talk the talk.We can do it , it maybe hard for while, but I don’t want to saddle future generations with these problem. They will have enough to deal with.