The United States is on the edge of making the largest corporate bailout in American history. Consider this statement made on Wednesday from Ben S. Bernanke, the Federal Reserve chairman, testifying on Capitol Hill:
“Despite the efforts of the Federal Reserve, the Treasury and other agencies, global financial markets remain under extraordinary stress. Action by the Congress is urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and our economy.”
This was said after an emergency request was forwarded to Congress for a proposed $700 billion economic recovery plan—about $2,300 for every American.
Dana Perino, President Bush’s chief spokeswoman, said that the country could face “a financial calamity” if Congress does not act soon.
Congress seems to agree that some version of the plan to rescue the American financial system must be approved.
The problem with this bailout plan is it gives the Treasury Department the power to buy up extremely risky mortgages and other dangerous debt using taxpayer dollars.
Congress should act in a way that protects both the integrity of the free market and the American tax payer from an increase in taxes and from falling more in debt.
These taxpayer dollars are our dollars, our money. We would essentially be paying CEOs and corporations to buy out companies.
But are these not the same corporations that have quite frankly ruined many American lives and created the crisis in the first place?
They have thrown you out of your house or taken your car or maybe denied you loans. Our hard earned money would be going to the corporations who least deserve it. But then again, these corporations are the backbone of the stock market, which reflects upon retirement accounts and the U.S. economy as a whole.
The Bush administration’s rescue plan was attacked from the left, right and center by Congressional critics. Recently, Democrats have been proposing plans to help bring up Wall Street firms without throwing away taxpayer money and without letting CEOs of the affected firms pocket the money or receive a big paycheck.
It is a tip-toeing effort by Congress, hoping to take into account both public outrage and economic reality. Indeed, there is plenty of blame to go around, said Henry Paulson, treasury secretary, who under the Bush plan would have sole discretionary power to spend the $700 billion. He added, “Let’s fix the problem in the way that is the least damaging to them.”
This financial problem on Wall Street brings a knowing nod from those who remember the Great Depression of the 1930s.
Bernanke said, “I believe if the credit markets are not functioning that jobs will be lost, the unemployment rate will rise, more houses will be foreclosed upon, GDP will contract, and that the economy will just not be able to recover in a normal, healthy way, no matter what other policies are taken.”
“This is not an expenditure. This is an investment. As the economy grows, as housing corrects, these assets should appreciate in value. The cost to the taxpayer will be far below what is invested in the assets,” Paulson said.
Several economists have also said that the $700 billion federal bailout will have little effect on longer-term trends. These long-term effects include an increase in unemployment, a decline in consumer spending and a large drop in tax revenues.
This means for the American taxpayer that a job will be much harder to attain, and that a degree from college may not help you in every situation. Taxes have a high chance of increasing making it even harder to afford necessities such as rent, insurance and transportation.
Government employment declined by 6,000 jobs from July to August, according to state figures. Many retail jobs are being cut in areas such as clothing, electronics, sporting goods, building and garden supplies.
The plan may level out the housing problem; however it could take months or years to repair the damage in these other long-term effects.