Rant of the Week: The impending bailout and/or economic fallout

Never thought I would regret not taking more economy classes. This is a difficult situation for everyone to get their heads around. I’m still unsure whether the bailout is a good idea. I’m pretty sure that it really stunk as Paulson first offered it, but was less offensive after some conditions that were added by Congress before the whole thing fell apart Thursday night.

Yes, the bailout stinks. It goes against important principles of accountability and a risk-reward capitalistic economy. It’s cool to say, “We’re not going to bail out these guys, it was their fault!” Yeah! That sounds great. Who’s going to disagree with that? From the forum/blog chatter I’m seeing, most Americans agree. “Let the billionaires suffer,” they say. Many of us have done our homework. We’ve entered into good mortgages, we’ve saved money, kept our debt down, and done everything the right way. So we’ll be okay through this mess, right? Not necessarily. It’s dangerous to assume that this won’t touch you. Hope you don’t need a loan. Hope you have a government job. Hope you’re not depending on your 401(k) anytime soon. Hope investments don’t make up a large portion of your nest egg. Money and well-being might not “trickle down,” but financial ruin might.

We can all see the negative side of the bailout now. However, we cannot see the negative side of doing nothing. I think when people are confronted with the evil they don’t know as opposed to the evil they know, they will inevitably favor the unknown. Those of you/us who oppose the bailout might think differently in 6 months when the results of a massive depression are worse for Americans than a bailout would have been. Even the brightest economists aren’t sure what is going to happen if we do or do not implement the bailout, so how can we pundits be so sure? It’s pretty scary for sure.

I believe McCain’s obstruction on Thursday to Congress’ adjusted plan is responding to the large public outcry against a bail out. Although, as I stated above, the bailout might be the lesser of two evils, I give him props for at least staying consistent to conservative principles. If economic conservatives want to preach no regulations and free markets, then markets should be free to crash without government intervention. It will interesting to see how this plays out in the debate tonight.

Although with my limited knowledge I can’t offer a solution, I can poach one. Read this interesting bit about how Sweden overcame their financial crisis:

A piece:

Sweden did not just bail out its financial institutions by having the government take over the bad debts. It extracted pounds of flesh from bank shareholders before writing checks. Banks had to write down losses and issue warrants to the government.

That strategy held banks responsible and turned the government into an owner. When distressed assets were sold, the profits flowed to taxpayers, and the government was able to recoup more money later by selling its shares in the companies as well.

The important thing isn’t only mitigating this issue, it’s preventing future catastrophes. Now even McCain and the “no regulation” crowd are seeing that deregulation was the problem. Hopefully this will lead to some sensible controls and accountability on Wall Street.