“There is no doubt a disruption in our national economy will occur, but intervention may ease the pain of that disruption.”
Claims-making at its best: U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke are scrambling to bring forth a rescue package that is beneficial to taxpayers and hoping Congress will consider the proposal and approve it.
They claim the U.S. economy is threatened. Why? In essence, it boils down to lenders offering mortgages to people who quite obviously were not capable of paying them back. But those facts are inconsequential to the crisis at hand. Banks are stuck holding these nonperforming mortgages, tightening the availability of funds.
These so-called assets and their related derivatives have already taken down banking institutions such as Wachovia, AIG, Bear Stearns, Fannie Mae and Freddie Mac.
From a holistic point of view, higher taxes will potentially lead the country to salvage banking institutions and possibly reap a profit in the long run.
When asked to address taxpayers, Paulson said, “You worry about taxpayers being on the hook? Guess what? They’re already on the hook.”
Paulson solidified the speculation that this critical situation will affect nearly everyone unless a consensus is reached. Essentially, individual taxpayers must suffer in order for the economy as a whole to thrive. There is a possibility that the latter conjecture could fail, but the effects of the government not intervening would be much more catastrophic.
Retirement plans — whether IRA, ROTH IRA or 401K — have a large possibility of being compromised if no bill is passed. Since retirement savings are invested in the stock market, when it plummets, so will personal life investments. There will also be further tightening-up of credit, loss of jobs and lower amounts of spending, resulting in a lower standard of living. As a nation, we will be forced to live within our means.
There is a definite concern of socialistic agendas if the government has their hands on private institutions. Indeed, many view any “bailout” plan as a socialist solution to a capitalist problem. However, there just aren’t any viable alternative plans at hand.
I’m certain that this nation is not willing to welcome another Great Depression. Avoiding this at all costs should be our primary concern at this time.
A popular theory that can be applied to this crisis is the “trickle-down effect,” also known as “trickle-down economics.” John F. Kennedy said it best: “A rising tide floats all boats.” This theory suggests that if prominent earners support business institutions, there will be more funds invested in these businesses, which will create more job opportunities and lower prices for the average middle and lower class citizens.
To be clear, I am aware that the passing of some sort of rescue package could create more problems than it solves. Then again, that is why they call economics the “dismal science.” Economies, including ours, are so inordinately complex that people do not know what exactly will happen when adjustments are made.
Americans cannot look at this situation from an every-person-for-themselves perspective. The market is in desperate trouble and when one part of the economy is in turmoil, it won’t take long before that turmoil reaches us all on a personal level. There is no doubt a disruption in our national economy will occur, but intervention, however difficult, may ease the pain of that disruption.
Rebekah Rosado is a junior double majoring in sociology and mass communications.
“Given the stakes, taxpayer and consumer interests need to be put ahead of Wall Street.”
He finally admits it.
After months of high gas prices, foreclosures and layoffs, President Bush told the nation in a primetime news address Sept. 24 that “our entire economy is in danger,” and if the government does not act quickly, we could face a “long and painful recession,” according to CNN.
His speech comes on the heels of Federal Reserve Chairman Ben Bernanke’s revelation that our economy will require $700 billion to purchase bad mortgage assets from major financial firms and banks in order to prevent collapse.
As a result, Congress is wrangling with legislation spearheaded by Bush that would allow the U.S. Treasury to bail out troubled firms by purchasing these assets with future tax dollars. Meanwhile, several other firms and banks are on the verge of going out of business, as seen by drastic drops in the stock market over the past week.
According to the BBC, the bailout plan would give U.S. Treasury Secretary Hank Paulson authority to purchase bad mortgages. Essentially, what this means is that the state of the economy rests on one person’s shoulders and the unprofitable assets become the government’s problem instead of the banks’.
In siding with Bernanke’s assessment, the Bush administration created a dangerous precedent by supporting this massive bailout. It sends a message to anyone who has started or ever wants to start a business that Uncle Sam will be there to help if things go bad — assuming, of course, that your business is big and important enough.
There are numerous problems with this bill and the way it’s being handled.
First, it presents the government as a selective lifeboat for corporations. Second, it shows inconsistency in government policy. It’s also a raw deal for taxpayers regardless of new tax breaks introduced in the reworked bill.
Furthermore, it offers little reform. Instead, it rewards the risky and incompetent behavior of executives who were paid enormous salaries to prevent these things from happening.
The inconsistency in government policy is evident in how insurer AIG and mortgage finance companies Freddie Mac and Fannie Mae were bailed out but other companies like Merrill Lynch and Washington Mutual were left to fend for themselves.
As for taxpayers, they have no guarantee that they will ever see a return on the $700 billion.
Assuming this legislation passes without comprehensive reforms — such as management overhauls at these companies and better lending practices — what happens when all of this bailout money is spent?
Chances are we will have just bought ourselves more time in avoiding a full-blown recession.
Let’s face it: $700 billion is a lot of money to just throw away. In fact, in an interview last week with independent media group Democracy Now!, consumer advocate Ralph Nader openly questioned the “need for a bailout.” Certainly, there are a number of other ways this money could be used to benefit a wider range of people in addition to getting us out of this mess.
Given the stakes, taxpayer and consumer interests need to be put ahead of Wall Street.
If our government is truly representative of the people and looking out for our best interests, this legislation should be methodically thought out, not rushed to a vote.
Any legislation passed needs to address an issue at the heart of the crisis — the widening gap between the rich and the poor. People need jobs. If people had decent paying jobs, they would not have to rely on credit to make ends meet and they could pay their mortgages.
Businesses and executives need to be held accountable so that someone else does not end up having to pick up the bill. And most importantly, the government, citizens and businesses need to do a better job of managing their finances and reacting more rationally when things turn downward. This would keep a single problem from becoming a full-fledged fiasco.
All of these things seem fairly logical, yet they appear to be on the backburner as chaos mounts.
In the meantime, my only hope is that once the finger pointing and the partisan bickering subsides, the nations’ representatives will notice the difference between the American public’s best interests and what is another Band-Aid on an open wound of a failed administration.
Jeremy Castanza is a junior majoring in economics.