Tuesday, September 23, 2008

The $700 Billion Dollar Bailout

I wish I could give you my complete expert assessment of all this mess that is happening with our financial institution. Over the past several months I've read and listened to more than my share of analysis on what has happened to our real estate market, how all of the sub-primed mortgage (largely) backed securities caused banks and other financial institutions to over-leverage into risky debt and now, as a result, we're experiencing a massive whip-lash back to reality. And it has affected everyone and has the potential of seriously affecting everyone, even those of us who did not get a sub-prime mortgage...

The problem is that I've been living with this sense of dread in my gut for the past few days I can't completely explain. I wish I could. But because of it, I've been trying to ignore the news, skipping over the op eds I usually read where liberal and conservative columnists are trying to make sense of the news and what if anything should government do about it.

Well, last night and some today, I jumped in for a bit.

The short of it is that Treasury Secretary Paulson wants to dump $700 billion dollars of tax payer money to basically buy off these almost worthless mortgage securities with the intent to inject the banks with an infusion of cash so that lending can begin again, with the hopes of basically pressing the restart button so that the economy can chug along again as if this whole mess never happened.

The last controversy remains is that Secretary Paulson wants complete authority, Bush Jr style, to spend that money however he wants. It looks as though some oversight will probably be required, but in the end $700 billion dollars looks to be coming.

I cannot even get my head around $700 billion dollars, but by all accounts without it, we could be facing a complete banking collapse and the US economy could be heading straight into a depression. Even with it, things are not sure, I've heard some fear that it could be money down the drain and a recession would happen anyway.

I'm at a complete loss.

The one thing I do believe is that the financial system just seems to be too complex. Too many of our best and brightest minds, the Harvard grads, are heading to Wall Street to make bank. But its not clear to me just how what they are doing really helps the economy. What is clear to me is that much of what they've done has helped drive our economy into this problem in the first place.

Sure, we need investment bankers. We need smart people to route money to the best and most promising companies. To the extent that investors do that, our economy runs much better, smoother, more efficiently. But in both of our recent bubbles, this one and the dot com bubble, this was not happening. You had too many people throwing money at stuff with no thought except a quick buck.

The fallout of all of this appears to be more government oversight, and hopefully smarter government oversight. What is also needed is a shift in our culture. Since Ronald Reagan, the Republican brand has been all about Americana and the culture of shopping. It seems we need to roll some of that back some. We need more smart people choosing less glamorous work like education, engineering, health care, and the like. Because really, it's what we do and what we make and what we innovate that is the backbone of an economy, and not only what we spend.

By the way, here's Barack Obama's lastest response to the crisis.

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