Why The Bail Out Must Happen

UPDATE: Well, it appears that the bail out bill failed to pass. So much for the great leadership of John Ass Wipe McCain. With the DOW plunging close to 600 points, I find it interesting that the House Republican’s really think they did their savior John McCain any favors. Oh well. I’d also like to ask, what parts of the current bill did John McCain advocate and get? None as far as I know. So if this whole market goes south, we know where we can firmly place the blame.

There’s a lot of angst on both sides of the isle about the $700 billion dollar bail out package being voted on today. While this is a pretty painful vote and difficult for the average taxpayer to understand, in the end, it has to happen. For those that say, “But we aren’t the ones that caused this,” I can only say, “the average American, while not a direct cause, has benefited from the poor regulation and speculation by Wall Street.” Here’s why.

Sub Prime Lending Allowed Housing Prices to Climb at Historical Rates. By greatly increasing the demand for housing by making it easier to qualify for a housing loan, housing prices overall grew by record levels each year. And despite the downturn in 2001 by most of the market, the real estate market continued on a trajectory that would only make the crash that much greater. Any time you allow someone to qualify for a loan that will require 50% of their take-home income to pay, and not require a 10-20% cash down payment, you run the risk that the borrower will default. However there were a lot of people that cashed out and made bank during this time - average tax payers - and funded lifestyles beyond their previous dreams. Let’s not forget that.

The economic recovery from 2001 until 2006 that drove stocks hiigher was largely fueled by easy credit and low interest rates. The days of easy credit are over - as they should be. But let’s not place the blame entire on Wall Street. How many people have bought into the 24 months no interest, no payment mentality on crap like flat screens, vacations, furniture and new cars. This is stuff that can’t be resold, loses it value almost instantly, and in end, suffers from a high emotional fall-off factor.

During my brief stint as a credit counselor  I would talk to 6 to 7 families every day, and their story was always the same - they spent, spent, and spent, without saving, and then something unexpected happened, and they were stuck paying credit with credit (not much unlike the current Bush administration).

I’m sure there are a million other reasons for our economy reaching a point like this. The main thing I want to note, is that the taxpayer crying that this wasn’t their fault, is unfair, considering we’ve all enjoyed the economic house-of-cards that the Bush years have built. Next time we might be more wary when housing prices are climbing by 15% a year and it’s easy to get 0% interest on an Caribbean cruise, after outfitting our living rooms with Dolby 7.1 and 62″ of plasma.