Thursday, October 2, 2008

Washington Failout

By Andrew Buhr

Unless you are living under a rock, you've probably heard that the House of Representatives failed to pass the “Bailout” of Wall Street. Partisan politics aside, it was an ironic demonstration of the fear that permeated from Wall Street to Congress. The reasons we received for the nay votes were the harsh words from Speaker Nancy Pelosi and the hesitancy to “bail out” Wall Street. Do not let those reasons fool you. For whatever these men and women are, they are not stupid. They simply surrendered to their constituency in an attempt to save their collective seats in Congress. They have used this term “bailout” as an attempt to sway public opinion through the manipulation of the English language and through partisan politics.

There are many misconceptions regarding this bill, starting with the term used to describe it from the start. “Bailout” has become the word of choice for this bill, but the word would be accurate if the $700 billion went into the banks directly. This is not the case. We should not view this bill as a sunk cost. The money’s purpose is to purchase mortgage-backed securities and other bad debt that is suffocating the banking industry. The problem is that mortgages trade in the market as well as stocks, bonds, etc. Since these loans went sour, so did the value of the securities. Since these mortgages are almost worthless, there is no market to sell them. The government’s plan is to buy these bad loans to free up the working capital of the banking and credit business. The $700 billion loan is not the same as the money used to fund the Iraq War. The Iraq War may or may not have an ethical value, but it has no intrinsic monetary value. We, the taxpayers who would be funding this bill, would become owners of the mortgage-backed securities. Granted, these securities do not hold much value. There is, however, potential for these to grow in value.

This issue is not political. It predictably became one. Congressmen, afraid to lose their seats, voted against the bill and had the nerve to blame a speech for their vote. They have recently changed their reasoning, realizing the flippancy of their previous rationale. The fate of the U.S. economy has become a battleground for a certain presidential candidate to make his mark and for certain congressmen to protect their own self-interests. Let’s allow people who do not understand the issues control our economy.

This raises the question: Is paying a lot now to stabilize the credit market (i.e. your ability to obtain a loan, the value of your home, the value of your retirement accounts) worth it? I believe the answer is obvious. We would gain a little now, and perhaps later, and avoid an almost certain nightmare scenario. People, however, have the freedom to formulate their own opinions. I only ask that you wade through the partisan waters and take a hard look at the benefits of the bill before allowing it to die.


Anonymous said...

How can we argue for this bill and still claim to have a free market?

Buhr's Blog (real name: TBD) said...

That is the conundrum of this issue. Is the idea of free market capitalism worth the trust we put in that system? Other philosophies, like communism, have failed (like other systems) because of greed. I am not a supporter of fascism or the invasive government action we have seen in this country the past 6 years. However, doesn't the government also have a duty to help struggling Americans. This bill not only helps out Wall Street, it helps out Main Street as well. Again, doing nothing is the biggest risk we can take.