When the U.S. House of Representatives failed to approve the $700B bailout today, it failed the American people. It means some U.S. Representatives voted out of fear to keep their jobs at the upcoming elections rather than do what is best for the country. Some of the best and brightest minds in the country encouraged the passage of the bailout plan, but the House didn’t do that.
In response the DOW dropped 777 points today, the biggest point drop ever.
Several days ago, Warren Buffet called the bailout plan essential to prevent the U.S. economy from going over the precipice. Buffet said Treasury Secretary Henry Paulson is the best person to get us through the current crisis. The Sept 29 issue of Newsweek magazine says pretty much the same thing about Henry Paulson.
Buffet also said that if Paulson is allowed to do things in the right way, the U.S. Governement could actually makes 10% ($70 billion) on the deal.
So why did so many House members vote no? Because their constituents wanted them to vote no. The lesson is clear, too many Americans don’t understand the relationship between Wall Street, the economy, and main street. Perhaps it is a judgment on the American educational system for not teaching basic economics. And it is clear from an interview I just saw on TV with one U.S. Representative, that some of them have no idea what they are doing.
Even without a course in basic economics, 1929 should remind everyone that when the market is in trouble, the whole country is in trouble. A long list of experts have been telling us this is the worst crisis since 1929.
Credit is in the process of freezing up as a result of this crisis. Without the bailout, money will be much hard to borrow than just a few short months ago. Everything from car loans to home loans to student loans will be much harder to get. A business (small or large) borrows money to buy wholesale products (or raw materials that they turn into products), they sell the products to their customers, pay off the loan and make some profit. They won’t be able to do that now. Some small businesses will fail and jobs will be lost. The net result is that businesses will begin laying people off. The freezing of credit combined with sub-prime mortgages also means more bank failures and more lost jobs. Less people working means less people buying goods, and a bigger strain on the unemployment insurance. Less good being purchased means more layoffs and the cycle continues. Jobs will be incresingly harder to find.
As things get worse, the market drops. When the market drops, who loses money? Just about every institution and everyone. Retirement and pension funds are invested in the market. The money in your bank accounts is invested in the market. The money you pay into your insurance policies is invested in the market until it is used to pay your claims. Its all tied together.
The most important thing to do right now to avoid a downward spiraling crisis is for congress to pass the bailout bill. The bailout will keep people in their homes. The bailout will keep small businesses from going out of business due to the credit freeze. The bailout will save jobs. The bailout is good for your retirement and pension funds. If your U.S. Representative voted no on the bailout, call them up and urge them to reconsider and vote yes. The job you save may be your own. I called my U.S. Representative and thanked her for voting yes.