Wall Street Bailout Bad for Main Street?

Will a $700 Billion Dollar Bailout Protect U.S. Taxpayers?

Sep 26, 2008

With Federal Reserve engineered bailouts of Bear Stearns, Fannie Mae, Freddie Mac, AIG, and WaMu, will an additional $700 billion dollars from U.S. taxpayers bring calm?

Bad bets on Wall Street may in fact be a big and bad deal for Main Street Americans as the Federal Reserve, Treasury Department, the Bush Administration and Congressional negotiators look to head off what could potentially be the worst financial crisis since the Great Depression of the 1930s.

Will the Proposed Bailout Plan Work?

One of the major concerns about this bailout proposal is whether it will actually work. And this seems to be a legitimate question because the suggestion of and progress on the bailout plan has not been able to stop major financial institutions from continuing to fail. The latest one to succumb to the current U.S. credit and financial crisis is Washington Mutual (a.k.a. WaMu), because as of September 25, 2008, JP Morgan Chase & Co. has acquired the deposits, loans, and branches of Washington Mutual," so said the Washington Mutual Web page. "Your deposits remain insured by the FDIC and are now also backed by the strength and security of JP Morgan Chase...so continue to bank just as you have."

Washington Mutual and the FDIC danger

The unfortunate circumstance for WaMu was that with all of the controversy swirling in the air regarding bailouts and government sponsored shot gun financial weddings, there was actually a run on the bank deposits of WaMu and had the government not stepped in and seized the troubled financial institution it could have perhaps dealt a knockout blow to the government's FDICs insurance fund, which is already reeling from the sudden collapse of Indy Mac Bank of California. Some government regulators have suggested that the unimpeded failure of Washington Mutual would have cost the fund and ultimately taxpayers $30 billion dollars.

Will the $700 Billion be Enough?

So this then begs the question, will the current $700 billion dollar bailout plan being bandied about back and forth on Capitol Hill be enough? Will this stem the tide of efforts needed to avoid what would most certainly be an almost total and complete meltdown of the U.S. economic system? One can only hope. To date, the current capital market meltdown has cost the American taxpayer $310 billion, with the potential for the bill to rise an additional $700 billion if the assurance offered over the past few days by President Bush and Senate majority leader Harry Reid (D-Nevada) are to be believed. That is over $1 trillion, which is a figure the average American has trouble even wrapping his or her head around. But think of it this way, if the proposed bailout is approved in its current form, it will basically cost every single U.S. household $10,000.

Bailout Deal Not Finished

But is not a done deal yet, and the stock markets are again down everywhere as the world still awaits the greatly anticipated final bailout news from Washington. As is now known, trouble was brewing for the completion of this deal as House Republicans balked at the the proposed bailout negotiations. Led by U.S. House Republican leader, John A. Boehner R-Ohio, a group of republican Congressman were expressing the dismay of having their ideology of free markets, free enterprise, and small government dashed with a single stoke of President Bush's pen.

Speaker Pelosi vs. U.S. House Republicans

For many Republicans like Boehner, the heavy handed government intervention into the financial markets is a betrayal of long-held so-called traditional Republican ideal that he and others have built their entire political careers on. So, in a move that was both unexpected and to many both inside and outside the beltway, like U.S. House Speaker Nancy Pelosi (D-Calif), the best example of how the Bush Administration is both incompetent and unworthy of trust from the American people to even pull off the the deal, U.S. House Republicans scuttled the deal saying it came up 12 votes short of passage because of partisan rhetoric by Pelosi and that fact that it was just not a very good bill.

Why the Rush for a Bailout?

But according to Bush in his nationally televised speech to the nation last Wednesday night, "We're in the midst of a serious financial crisis, and the federal government is responding with decisive action...Financial assets related to home mortgages have lost value during the house decline, and the banks holding these assets have restricted credit. As a result, our entire economy is in danger." And with the breakdown of the bailout proposal on Monday in a 228-225 no vote by the U.S. House of Representatives, the proposal now goes to the U.S. Senate where various concessions by Democrats are likely to perhaps include numerous tax breaks which are expected to act as an olive branch to help entice U.S. House Republicans back to the negotiating table. But if Monday's record one-day 777 point slide and over one trillion dollar loss is any indication, something will ave to be done, and soon.

The copyright of the article Wall Street Bailout Bad for Main Street? in Social Corporate Responsibility is owned by Paul Hamilton. Permission to republish Wall Street Bailout Bad for Main Street? in print or online must be granted by the author in writing.