To bailout, or not to bailout?

UPDATE: 09/29/08, 1:05 PM- The genius Republicans stuck down the bailout plan just a few minutes ago (of course, Nancy Pelosi's couldn't resist taking a shot at the administration and Republican party on the House floor). The DJI is tumbling, somewhere a small-town local banker just had a heart attack because he just realized that he can no longer provide a loan, and the Republican House Reps are driving their Lincolns to their private country club. Why is it that a bunch of lawyers think they are economic experts? Apparently Republicans REALLY want to loose this election.

It seems like the topic de jour these days is the anticipated economic bailout package that is moving through the Washington D.C. works. I've been asked a lot about what my thoughts are on the issue, and it took me a while to actually have an answer, but here it is.

This is a necessary evil. I have not been pleased with the way Wall Street firms have been reckless with their investment strategies over the last several years. Their recklessness is a direct result of the common performance-based bonuses that many top executives have in their contracts. These incentives have enabled the high-risk, high return investment strategies that have come to bring those institutions down. Most of these investment strategies have revolved around real estate (mortgage-backed securities and ownership of mortgage debt). The bottom fell out, and many firms who were highly leveraged in these investments got caught up. So the question I asked myself was "why should taxpayers pay to bailout the top 1% of wage earners in the country?"

Because we have to. With the collapse of Bear Sterns, Fannie Mae, Freddie Mac, Lehman Bros, WaMu, Wachovia, and almost AIG (quite the list, right?), our economy is in really bad shape. The bailout is necessary to keep us normal people, floating until the economy stabilizes. Without the bailout plan, the dollar would plummet, causing massive inflation (you were unhappy about $4 gas, just imagine $6.50), bottoming out of real estate values (the majority of americans list their house as their portfolio's largest asset), all of which would perpetuate the economic down-spiral. And that's not even open up the credit market can of worms. It's kind of like an economic black hole that is self-perpetuating in its' economic damage. We need this bailout to keep any of this from happening.

Just listen to Jim Cramer, one of the most brilliant (but crazy) financial and economic minds of our generation. This guy has the economic power to move markets, and he has his finger on the pulse of Wall Street and the Market Economy. He is the person that, I think, may be the most qualified to speak to the current situation.


So I guess my answer when people ask me what I think about the bailout plan is (gritting my teeth) "I think it's a good idea."