Bailout plan a necessary evil for U.S.
Chris Webb
On Friday, the economic bailout was passed by the House of Representatives and signed into law by President Bush. In the midst of much wailing and gnashing of teeth, the plan has been decried as a "sham" and a "big cow patty with a marshmallow in the middle" by analysts, liberal and conservative lawmakers and regular folks alike. Despite this motley crew of enemies and their compelling arguments, this plan is what our economy needs.
For years, lenders could get credit very easily, thereby making it easier for the average person to attain credit to buy a home or other big-ticket items. Homeownership in the United States reached the highest rate in world history, with almost two-thirds of every household owning their home. At the height of this stellar rise of the realization of "The American Dream" for millions of Americans, everyone wanted to concentrate on the positives and ignore the sword of Damocles dangling over our collective head.
Who’s to blame? It doesn’t matter; these firms need money now. This question brings about a moot point, and rather than pointing the finger at everyone, from almost all members of Congress to basically every lender and to those who purchased homes when they knew they were getting in over their heads, we must use this experience to sharpen our wits and eyesight to be able to spot the next disaster before it gets out of control. There must be transparency in all aspects of financial markets with diligent oversight by our elected leaders.
The world economy, of which we play an integral part, depends on these large financial firms to stay afloat. They are "too big to fail." This is a lamentable reality of our quasi-capitalist system. This is the situation now, but it does not have to be so in the future.
Yes, the price tag is steep, and our government buying toxic debt from, for now, unknown entities of unknown amounts leaves a gaping hole for many to escape with little loss and little accountability. Despite this likely scenario, there is a better alternative included as an option in the Senate rewrite of the bill -stock injection. This alternative gives the American taxpayer preferred stock in these companies and with it partial ownership and injects much-needed capital into the corporations. With this capital, individuals, businesses large and small and many other entities will be able to borrow and induce economic growth.
These corporations need billions or they may fail, leaving nations’ economies falling like dominoes in their wake. They will get their money because Bush and Congress saw to that; now we must move on to the next step and ensure we get our money’s worth.
Webb, Opinion editor and a political science and creative writing senior, can be reached at [email protected]
Credit debt not resolved by more debt
Blake Gilson
Easy credit injection by the government is at the heart of this economic crisis. The government encouraged this uneconomic business plan in two ways.
First, the federal government’s creation and special status of Fannie May and Freddie Mac (part-government agency, part-incompetent corporation) were designed for the sole purpose of putting questionable homebuyers into homes when the free market, free from government meddling, would not allow the creation of such risky securities.
The second way the federal government encouraged this crisis was by decreasing interest rates to one percent. Former Chairman of the Federal Reserve Alan Greenspan admitted this was a critical factor in the creation of the sub-prime crisis in his interview with Democracy Now! last year. Greenspan pointed out that this was an international phenomenon that needed an international explanation. The Federal Reserve caused the problem here, while central banking and government manipulation of interest rates caused the same problem abroad.
We need to understand what happened here in order to understand how to move forward. If we don’t understand this, we are going to repeat the same thing that got us into this mess in the first place. Lenders were able to get easy credit for years, and now we all have to suffer the consequence of such economic mismanagement. We cannot have it both ways. We can either have a sound investment with a strong core to our economy, or we can actively attempt to get people into homes, via government intervention, at the jeopardy of our economy.
We know now that the American Dream for millions of Americans was an illusion. Many Americans were able to buy homes, not because they were able to save, plan and earn enough to purchase a home that was within their means, but because presidents for decades have wanted to cite how new homebuyers increased substantially during their administration. We can have a bubble-back economy or a solid, stable one. There is no middle ground.
When credit is short, as it is now, interest rates rise. When interest rates rise, savings will produce higher returns. People save more. When people save more, the economy can allow the credit they need to make new investments from a solid foundation – real money in the bank.
The alternative to this is forcing down interest rates, regardless of savings. This is functionally the aim of every plan that the government contemplated. Sure enough, the government’s solution to this problem is more easy credit. It was easy credit that caused this problem. We don’t need government intervention to fix any credit crises. High rates mean people will save more, which will help reverse our trend of being a debtor’s society.
Don’t fall into the "too big to fail" mantra. The Bush administration and his friends would love for you to be scared into centralizing more power at the expense of freedom. We paid our price with the Patriot Act, we should not let them win again with this "economic" Patriot Act.
Calls for regulation and oversight seem natural, but they miss the point. Why do we need more regulation when the government induced the problem? The solution to this crisis cannot be more government control when it was government control that got us here. The market needs to be freer. We need a free market in housing, something we have never had-no Fannie and no Freddie. Yes, there will be less homeowners and more renters, but when faced with a choice, we should all choose sound investment over a new government back-bubble.
Gilson, a business sophomore, can be reached via [email protected]
