THE AMERICAN ECONOMY IN PERILOUS WATERS

Will The Treasury Department's Bailout Plan Really Work?

First, there was Bear Sterns, once the country's fifth-largest investment bank, in big trouble (we’ll start with Bear Sterns and not even mention all of the corporate meltdowns we’ve seen in recent years, like Enron). So, the Federal Reserve stepped in and engineered a plan whereby the Fed coughed up $30 billion to cover Bear’s more vulnerable assets and JPMorgan Chase got to purchase Bear Sterns for $2 per share; a 93% drop from Bear’s previous worth. One would certainly hope the American taxpayer eventually gains some profit from this – we’re sure going to pay the price for it.

Then, Lehman Bros. Holdings Inc. is forced into bankruptcy (only Chapter 11…not 13), and Merrill Lynch & Co. find themselves in a shotgun wedding with Bank of America Corp. as the groom. Next, government-sponsored Fannie Mae and Freddie Mac, dominant participants in the U.S. mortgage markets, found themselves in trouble. So, a new agency was created to regulate Fannie and Freddie: the Federal Housing Finance Agency (FHFA), which now holds Fannie and Freddie in conservatorship and has fired the firm's top management and board of directors.

Oh wait…it’s not over yet. Now, AIG (American International Group), the large insurance group with international connections, is bleeding to death. On September 17th the Fed made a loan of $85 billion, to rescue the behemoth insurer, in exchange for about an 80% stake in the giant company. But, everyone knows, “…this show ain’t over yet.” There’ll be another one and another one and another one, until America falls flat on it’s financial butt, probably dragging the rest of the world markets down with it. That would get real ugly, real quick, to say the least.

So, here’s the plan; and we hope you taxpayers, workers, employers, renters, homeowners, business owners, etc., etc., etc. are listening to the news because, once this trickles all the way down, it’s going to land right in your laps (if you pay your taxes, that is):

The Bush administration is strongly recommending that Congress very quickly pass its far-reaching $700 billion bailout plan, intended to help financial institutions with vast holdings in bad mortgage debt. This taxpayer-funded bailout will require tax revenue of about $2,000 for every single man, woman and child in America.

As intimidating as a figure like $700 billion may seem to the average person, the bailout plan may be the safest course of action to follow, albeit extremely distasteful. On most of the Sunday morning news programs yesterday, Treasury Secretary Henry Paulsen repeated, again and again, that failure to take action to resolve this financial crisis would bring economic catastrophe. Let’s hope they know what they’re doing, or we’ll be in jeopardy of losing more than our jobs and our homes; we’ll lose our Country.

For more see:
The New York Times - Business
NPR - National Public Radio
Bloomberg.com

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