Why We Needed the Bailout

Upon request, I am going to attempt to explain why we needed an economic bailout, in the most simple terms possible. Keep in mind, by all accounts, neither McCain or Obama were able to answer this question in their debate.

For whatever reasons, mortgage firms and banks (led by Fannie Mae and Freddie Mac) have been giving loans to those they should not have been giving loans to. Republicans will blame the Democrats for forcing these institutions to give "politically correct" loans to those in the lower classes who could not afford them. Democrats will blame Republicans for promoting an environment of deregulation that led that led to these two major institutions and started the major part of the trickle effect we have seen this year...covering banks, insurance agencies, brokerage houses, private business, and even government entities (California asked the government for about $7 billion yesterday).

The fact that people were not able to pay the mortgages given to them by their banks started this trend that has crippled many portions of our economy (along with the housing bubble burst itself, similar to the technology bubble burst toward the end of the Clinton presidency). Without people paying their mortgages, they are losing their homes. The banks and government entities they received their mortgages from suffer because they are not getting paid back. Government suffers because all of this equals a lack of tax revenue. Businesses suffer because if people can not afford to live, how can they afford to buy anything? Most importantly...this economic crisis involves credit. Most small businesses operate on a line of credit that is quickly being taken away from them. A very high majority of American citizens also operate on a line of credit, which is quickly being taken away from them. In short...all the makings for a depression. As can be seen on Wall Street, many are pulling their money out of the private entities that make up our economy; they are afraid of how far the credit crisis will go and how many Americans it will affect. The money being given out in this bill will be used to buy back bad debts, hopefully to sell them in the future when the value of these debts returns to normal. The theory is that, by stabilizing the credit markets, we can avoid a depression.

Whether you like the bailout bill or not (I would have agreed with it if it took steps to avoid this problem from happening again - politicians have cleverly pushed the obviously needed regulation to after the election season) an influx of money is needed in the economy to help beat off an oncoming depression. The only entity that can possibly put money into the economic system and work to avoid a depression is the government. I am extremely conservative on government spending, but this is a situation in which I think it is OK to rely on the government, so long as steps are taken to avoid this situation from happening again in the future.

I have not looked at the exact provisions of the bill yet...I know some money is going to be used now, some later. I know it puts certain limits on executive compensation for the companies that take money from this bailout (I don't know the limits). I know it does NOTHING to punish those in current regulatory positions over this crisis (Barney Frank, Chris Dodd, Christopher Cox, Ben Bernake). It does not take McCain's suggestion to form a separate entity that would monitor the loans being given to citizens by these institutions, or for that matter, any add any reform or accountability to our regulatory system.

Most important of all, this bill COMPLETELY takes credibility away from McCain (Obama as well). Throughout the first debate, McCain brought point and point back to the fact he would not sign a bill with earmarks and that he would "veto the bill and make those famous" who put the earmarks in. Well, he just voted for a bill with earmarks. Read and view them all here!

(http://themountainsage.wordpress.com/2008/10/01/the-new-senate-bailout-bill451-pages-with-earmarks-and-tax-extenders/)
(http://www.cnn.com/video/#/video/bestoftv/2008/10/03/gb.senate.bailout.pork.cnn)

Ridiculous. Plain and simple. Some of these provisions might be useful....but they should not be tacked on the end of a bill simply to bribe someone into voting. They should be dealt with separately, as part of a bill focusing on these issues, so these provisions can be given the attention and debate they deserve.

Hope this works Chris!

Until we meet again, goodbye!