Economic’s 101 – The September 2008 Bailout

What Needs to Be Bailed Out and Why?

Have you ever tried a home remedy? Most of us have from one time to another. We probably figure, what the heck, it's worth a try! Sometimes a home remedy works really well and sometimes you end up going to the doctor and getting a prescription because the home remedy didn't do the trick.

Economics, on the large scale with which we are currently dealing, is much the same as home remedies. There are no set, tried and true, prescriptions to turn around a credit crisis, eliminate mortgage defaults, fend off inflation - recession - defaltion - or stagflation, or kill the cancerously bad practices of paper floaters and major financial concerns. Theory can be applied, but any solution will offer debatable impact until put into practice.

You never really know how the home remedy will work until you try it and find out. But unlike a home remedy, which is usually cheap, a bailout of $700,000,000,000is more like buying a hospital, or two. Almost seems like we just skipped the visit to the doctor, or maybe that opportunity sailed on by about 5 or 6 years ago and now we are on to the experimental Chemo treatment?

Yesterday I received an circular email, originated from a guy going by the name of T.J. Birkenmeier, offering an elaborate joke concept as an alternative to the Big Bailout. This email suggested that, if the main goal of the Big Bailout was to avoid mortgage defaults and keep the economiy moving, perhaps we would be better served to divide the $700,000,000,000 equally among each and every U.S. Federal tax paying citizen. Most would immediately pay down their mortgage, buy some high ticket manufactured goods, pay down credit cards and other debt, set up college or retirement funds or save some liquid cash for emergencies. Mortgage defaults - fended off a bit, Credit Crisis - oiled up and ready to move again, bad lending practices within the financial community - well, no home remedy cures it all.

One friend said this was an impractical idea. I asked "why?" He said because the government would never do it, agreed, but why does that make it impractical? In the past we have received tax rebates of flat amounts for each tax payer. These were a bit smaller, but in composite were meant to spur economic growth through retail purchases. Did it work? In a small way it had an effect. With $700,000,000,000, it could have a much larger effect. Would financial institutions fail? Perhaps, but they would have a healthy influx of cash if people paid off their debt.

Anyway, it's a thought and a legitimate one at that.

And it's time for everyone to listen to thoughts and maybe get going on some thoughts of their own, because economies are flowing things and this will not be over abruptly. Chris Isidore, a senior writer for CNNMoney.com wrote a great article about the credit crisis and bailout plan this morning which is well worth the time for you to read. One major point he makes, no matter what our lawmakers decide to do, the economy will likely get worse before it improves.

Some probelms cannot be avoided, they are coming and all we can hope for is a lessening of the ripple or gorge they will create. Just like home remedies, the bailout plan might do some good for some people and some factors, but their chance of curing your illness is limited.