The Bailout

I have been asked lately what my take is on the Government bailout. I find it ironic that people want my opinion since my knowledge of finance is severely limited. I don't balance my own checkbook and my personal 4o1k is a complete mess so it is tough for me to say with any real credibility what should be done.

Having said that, here are my initial thoughts. A complete bailout without strong oversight is a bad idea. Simply bailing out wall street is only a temporary measure. It doesn't really address the root causes that lead to the bad loans being made in the first place. Without consequences what incentive is there for firms to change their ways? Why should tax payers bail them out for their mistakes especially when so many people are struggling just to get by themselves? By taking these firms off the hook, I worry that they will not learn from their mistakes.

On the flip side, I realize that many businesses are cash strapped and without a healthy credit industry these companies will basically starve to death and could go out of business due to no fault of their own. I also know that many people are highly invested in the stock market and the one thing market fears most is uncertainty. If nothing is done many people will lose much of their life savings as the stock market takes a dive.

My suggestion to Congress is to provide a portion of the money upfront to keep enough money flowing into the market so as to avoid a complete economic collapse. This will buy some time to design a new regulatory scheme to assure improved lending practices. They should also demand more accountability on behalf of the banks. Only after the people responsible for this mess are removed and the firms agree to certain thresholds in reforming their practices, then give them the rest of the money.