The Bailout – Will it Work?

In the last month, it seems like every financial giant was on the verge of failing.  Lines of credit began to freeze.  There were claims that the financial world is about to crumble unless government acted.  We were warned by President Bush, Treasury Secretary Paulson, and congressional leaders from both parties that if the government didn’t act, credit lines would freeze.  

Last Monday (September 29), the House failed to adopt the bailout as was presented to them.  The Senate added tax breaks for wooden arrow makers and rum producers to help the plan pass.  After much arm twisting, the House passed the plan on Friday.  

It is important to know that the financial sector throws in over $100 million in PAC money every year to both parties.  Many financial experts have been saying that the bailout plan will do little for the economy.  Buying bad debt will liquidate markets, but will not necessarily make it easier for small businesses to get a loan.

Credit lines were beginning to loosen on October 1, two days before the bailout bill was passed by the House and signed into law by President Bush.  They started to tighten again as soon as the bill was passed by the House.  Wall Street soon realized that the bill would not help most sectors of the economy and the bill would not do what it was intended to do.

What would have happened if Congress were to do nothing until after the election?  Credit lines would have gotten tighter temporarily, until the banks had enough capital generated from the loans it was collecting from.  The capital would have opened lines of credit because the banks need to give out loans to make money.  

The media did not tell the consequences of a bailout:  Since the treasury had to borrow money, it had to create $700 billion to loan to the financial sector affected by failing banks and corporations.  The end result is inflation.  Prices will continue to rise because the dollar is weakened because each dollar created by the treasury weakens the value of the dollars in the marketplace.  Precious metals like gold and silver rose iin value, mostly due to a weaker dollar.  The bailout bill did nothing to relieve what caused the root of the problem:  Congress mandating banks take sub-prime loans.  The government assured that the losses would be covered.  Foreclosures were happening at a faster rate than the government was expecting and soon the banks had so many bad loans, they did not have liquid assets to offer loans for anybody else. 

We need leaders.  We don’t need people who react in a panic mode when something goes wrong.  John McCain and Barack Obama both panicked and voted for the bailout package.  This is not the leadership we need to get us out of the economic mess that government caused.

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Filed under debt, Democrat, McCain, Obama, policy, politics, Republican, spending, Washington

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