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Politics & Legal > The Bailout
 

The Bailout


My husband, Ed, has a masters degree in marketing and finance from Boston University. He explained to me the economic reasons why a bailout, although repugnant, is necessary. Here they are:

The financial markets run on credit, not money. If credit is unavailable (it would dry up without the bailout),then banks cannot lend and businesses cannot meet their payrolls nor buy inventory.

The securitized mortgages being held by banks are clogging the financial markets. They have to be removed to allow credit to flow and banks to function. Since the housing crisis has caused these mortgages to nonperform, part of this bailout must be used to correct the existing mortgage market and allow people to avoid foreclosure.

The issue of bailing out people who were greedy and exploited the system is not pertinent since if we do not have a bailout, the American economy will drop back to 1932, with 30 percent unemployment, massive business failures, bank failures far beyond what we have seen and a worldwide recession unprecedented in modern history.

It might feel good to punish the greedy guys who ignored safeguards and went for the quick fix at the expense of the integrity of our financial infrastructure, but we are destroying it totally if we do.

Any bailout of course must have language that does not allow the previous excesses to be repeated. This is the challenge. That is the substance of the discussions going on in Washington now -- how to do it.

There was a story in the L.A. Times today -- here is the lead.

"Financial industry's campaign donations could help it in bailout
By Tom Hamburger and William Heisel

Firms have given lavishly to both parties in Congress. That could help them get the language they want in the bill - as well as block provisions such as homeowner assistance."

Let's watch this one.

xx, Teal

posted on Sept 23, 2008 11:46 AM ()

Comments:

Great post. That really simplified something I have absolutely no clue about. Now, I feel like I understand it a little more. Thanks.
comment by jerms on Sept 24, 2008 3:15 PM ()
Teal, there is going to be a great discussion of the bailout on tonight's NewsHour with Jim Lehrer on PBS. Hope you and Ed and your blog readers can tune in. Here are the details:

BAILOUT DEBATE
The rescue plan for the financial system encounters headwinds on Capitol Hill. NewsHour congressional correspondent Kwame Holman reports. Then, for perspective, Jeffrey Brown is joined by three guests: Allan Meltzer, professor of political economy and public policy at Carnegie Mellon University; Eugene Ludwig, who served as the Comptroller of the Currency. He is CEO of Promontory Financial Group, a consulting firm; and Paul Krugman, professor of international affairs at Princeton’s Woodrow Wilson School. He is also a columnist for the New York Times.

CREDIT CRUNCH
A closer look at what triggered the dramatic credit crunch that prompted the economic meltdown. NewsHour economics correspondent Paul Solman explains the ins and outs of the credit crunch in the U.S. financial sector and what it means for consumers.
comment by marta on Sept 23, 2008 3:43 PM ()
How I wish politicians were purer. Thank Ed for the good, clear explanation of just what is at stake. I hope there are enough provisions in the bail out to give taxpayers a share in the bailed out companies and to limit CEO salaries and benefits.
comment by elderjane on Sept 23, 2008 2:27 PM ()
I have been watching Lou Dobbs on CNN and enjoying his take on Washington and the powers that be. I'm glad that you explained the purpose of the bailout, for many are against; however, the alternative is too grim.
comment by angiedw on Sept 23, 2008 12:58 PM ()
with all of the money that Obama camp has raised,maybe they
can donate some of this to them.Oh!what do I know[HEAR
T]good post there.Thanks.
comment by fredo on Sept 23, 2008 12:14 PM ()

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