Monday, September 29, 2008

House Failure to Approve Bailout--Good News or Bad

Obviously, Wall Street thinks it's bad news that the House of Representatives rejected the proposed economic bailout bill crafted by Treasury Secretary Henry Paulson and expanded by legislators. The Dow dropped 778 points, its "largest closing point drop in history," according to today's Washington Post. However, I'm not so sure it was a good idea to approve the bailout in the first place, so perhaps the news isn't so bad, after all. Perhaps the House has given lawmakers and policy makers a chance to get it right next time.
However, if Bush and Paulson are urging Congress to enact the current legislation, what's so wrong with it? Isn't it better to pass this bill than face economic Armageddon? Clearly, some kind of bailout is necessary. The Treasury can't just sit back and watch the collapse of Wall Street without taking any action at all. The problem is, the Treasury isn't sitting on a pile of gold and laughing derisively as banks implode under the weight of bad mortgages. No, the Treasury is counting on U.S. taxpayers to foot the bill for this bailout. How can anyone make any sense of all this and figure out a solution?
1) The government must take some kind of action--some kind of bailout is necessary to restore confidence in the market. However,
2) Doing bad business must not be rewarded. Banks and investment firms lent money to borrowers who couldn't pay it back. I've never trusted lenders to tell me how much I could afford to borrow, and lenders always seemed to think I can afford to borrow more money than I think I can. "I need more debt like I need a hole in my head," I tell anyone who is listening, usually my dog, as I fold up offers to borrow money plus the envelopes they arrive in and mail the entire package back to the lender. Let's not give lenders the idea that they can run wild because Big Daddy Government will bail them out.
3) We cannot afford to return to business as usual. The good old days of lending to anybody and everybody are over. It's time for us to behave ourselves. The whole point of the bailout is shore up the markets so that we can do business responsibly, not recklessly.
4) The government cannot be given too much power in this situation. Is Paulson's bailout package the equivalent of a sort of economic marshall law, in which many rules put in place for the common good are suspended? Wall Street ran wild, and look where it got us. The government cannot be permitted to run wild in its place.
5) Individual borrowers must get a little of the protection, too. The Feds are rushing out into the storm bringing umbrellas for financial institutions that made bad decisions and leaving individual borrowers out in the rain. I see no need to reward individual borrowers for making unwise choices anymore than banks. However, if something is to be done to help out banks then it stands to reason that something should be done to help out those who borrowed from them.
It's all very well for a writer and a piano teacher to rave on about what's happening in the financial markets, but what are each of us supposed to do? I'm not ready to lose faith in the financial system, and there's no point in rushing out to rescue your money since all banks are probably guilty of varying degrees of unwise lending. All I can see is that it's time for us, as individuals, to do what the banks should have been doing all along--handling money wisely. Spend wisely and less than you earn. Increase savings and minimize debt. Eat your broccoli, take your vitamins, and get some exercise. It might not be sexy or glamorous, but these are tough times. Perhaps if we behave ourselves and take good care of our assets, the markets will eventually stop punishing us.

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