The Proposed $700 Billion U.S. Economic Bailout

Earlier this week, the U.S. House of Representatives voted down the Bush

administration-proposed, and subsquently signifiantly altered, economic bailout package that was worth up to $700 billion dollars. That is a lot of money and if it makes you uncomfortable, it should. It is a lot of money.

After the bill's failure, the markets went for a huge tumble. The Dow fell in what was described as historic drops. I saw it in my own retirement investment portfolio (RRSP) and how it lost significant value over the span of a day. In looking at mutual fund and stock prices, I doubt anyone's portolio performed any differently than mine. Everything took a dive.

I am not an economist by any stretch of the imagination, but I really wonder whether this bailout package is the right thing for the U.S. Bush alluded to it in a prime-time address late last week (I believe) where he says normally he wouldn't consider bailing out those who make mistakes, and I see his point about what would happen if nothing was done, but maybe that's just what needs to be done - let's face it, the American economy is in a recession, and the signs of this have been evident for many years. My wife and I were talking recently and I think she said that it seemed like after 9/11, U.S. investments have been on a continuing spiral. I have picked up more U.S. funds in my portfolio in recent years thinking that it can't get any worse than the price for which I bought my units, but nope, the prices continue to slide.

I tend to agree with those who argue that this sends the wrong message to these companies who for years have been making risky, if not bad business decisions, taking chances on risky investments on a volatile housing market and paying their CEOs exorbitants amounts of money. To bail them out does seem to excuse these decisions, but I do realize it's not just the institutions' leaders that are affected - these firms have thousands, if not tens or hundreds of thousands of employees who would be unemployed, and that, surely cannot help the economy.

Some have said that why should the average Joe have to chip in for the mistakes of Wall street? This is true, and I can empathize with this point, since this $700 billion is taxpayer money. I think that by not doing this, though, it's going to come back to hurt them in other ways such as being refused credit or lending for things like loans and mortgages. With no money to go around, who's going to lend it?

However, while I put the blame on these institutions for not properly vetting their potential borrowers due to greed, I also fault borrowers in general who borrow more than they can afford or take risks in taking on more credit than they can afford. But isn't this the way the culture is right now - we have these stupid payday loan companies who will be happy to lend you money at a ridiculous interest rate to help you cover things until you get your paycheque. People should realize that if you're going to one of these places, you have a bigger problem than needing a quick loan.

To me, the bailout, while stablizing the economy for the short-term, does not really address the long-term issue of pure greed, both from the lender, as well as the borrower. The bill was revamped and passed a Senate vote yesterday, but still needs to go to the house. I hope it's defeated again.