The Bailout Plan Passed – What Took So Long and What Does It Mean To Me?
George Boelcke FCI
October 03, 2008
Congress today passed controversial $700 billion bailout plan. While it was neither optional nor popular, it was one of the rare times when reality, necessity and doing the right thing trumped politics.
We all know families who are on the financial edge, broke, desperate and with no place to turn. Now imagine that situation for an entire financial system with global implications and you´ll have a good understanding of why it was necessary to pass the bill. It wasn´t necessary that this bill also included a ton of earmarks, according to Tax Payers for Common Sense, but that´s another issue. The other bad news is that this huge amount won´t be the last one. Think of it as paying someone´s minimum credit card payments, not paying off the balance.
Why was so much of the general public against the bailout? Simple: Very few people understood, or understand today, the wide-ranging implications if the bill hadn´t passed, which would have been way beyond a few more 300 point drops in the Dow. Quite correctly, it doesn´t seem right or fair to be bailing out companies who gambled and lost while pocketing billions in pay and bonuses. But in the big picture, the saying "too big to fail" really is accurate. Perhaps what happens in Vegas should stay in Vegas but you can be guaranteed what happens on Wall Street, for better or worse, goes global in a matter of seconds.
Last week, during a seminar, I asked the group of more than 100 how many actually understood how we got here, what it involved, and the implications for the coming years. Not a single hand went up! Sure, we have the buzzwords from the media and we´re being sold "Main Street vs. Wall Street" and "no bonuses for rich executives," but not much else.
During one of the primaries, CNN showed a quick poll asking voters whether they would support a candidate who agreed with their views or one who had different policies. More than three-quarters of voters chose the candidate who agreed with them. To me, that was very sad. Maybe I´m just naive, but is it helping someone telling them (or the country as a whole) what they want to hear, or is it caring enough to be honest?
It took exactly 15 minutes to explain this nightmare from the start of subprime lending to mortgage backed securities, the financial situations of banks and investment houses and the position we´re in today, in language any teenager could understand and re-tell. Yet that hasn´t ever been done for the general public! Small wonder when we don´t understand, the vast majority of Americans won´t support any proposed measures.
Exactly what we hate the most about the "big banks" is that we´re paying them all that interest and all those payments. But at least for us, borrowing was optional. For millions of businesses, it is the oxygen to their survival and without access to credit the impact in the economy would reach beyond the imagination of most people.
What should you and I do, however? Since nobody will be coming to our aid with a bailout package, if it is to be, it´s up to me. Do a simple written budget where you have a game plan for your income because we cannot change what we do not acknowledge. Then have your own bailout account – a savings account that is not hooked to your bank card (just in case…) with $500 to $1,000 in it for a real emergency. After that, get real and get serious about your debt and monthly payments that are killing your hope for financial freedom. Focus on one at a time so you don´t get that overwhelming, what´s the use, feeling. It´s not hard to know where to start: take your smallest balance and put every spare dollar you have towards it.
After that, target the next one with the freed up money from the first on and so on. Keep the one you´re focusing on taped to the fridge and make it a game and not a pain and you´d be amazed at the results. Because if you don´t – who will?
We all know families who are on the financial edge, broke, desperate and with no place to turn. Now imagine that situation for an entire financial system with global implications and you´ll have a good understanding of why it was necessary to pass the bill. It wasn´t necessary that this bill also included a ton of earmarks, according to Tax Payers for Common Sense, but that´s another issue. The other bad news is that this huge amount won´t be the last one. Think of it as paying someone´s minimum credit card payments, not paying off the balance.
Why was so much of the general public against the bailout? Simple: Very few people understood, or understand today, the wide-ranging implications if the bill hadn´t passed, which would have been way beyond a few more 300 point drops in the Dow. Quite correctly, it doesn´t seem right or fair to be bailing out companies who gambled and lost while pocketing billions in pay and bonuses. But in the big picture, the saying "too big to fail" really is accurate. Perhaps what happens in Vegas should stay in Vegas but you can be guaranteed what happens on Wall Street, for better or worse, goes global in a matter of seconds.
Last week, during a seminar, I asked the group of more than 100 how many actually understood how we got here, what it involved, and the implications for the coming years. Not a single hand went up! Sure, we have the buzzwords from the media and we´re being sold "Main Street vs. Wall Street" and "no bonuses for rich executives," but not much else.
During one of the primaries, CNN showed a quick poll asking voters whether they would support a candidate who agreed with their views or one who had different policies. More than three-quarters of voters chose the candidate who agreed with them. To me, that was very sad. Maybe I´m just naive, but is it helping someone telling them (or the country as a whole) what they want to hear, or is it caring enough to be honest?
It took exactly 15 minutes to explain this nightmare from the start of subprime lending to mortgage backed securities, the financial situations of banks and investment houses and the position we´re in today, in language any teenager could understand and re-tell. Yet that hasn´t ever been done for the general public! Small wonder when we don´t understand, the vast majority of Americans won´t support any proposed measures.
Exactly what we hate the most about the "big banks" is that we´re paying them all that interest and all those payments. But at least for us, borrowing was optional. For millions of businesses, it is the oxygen to their survival and without access to credit the impact in the economy would reach beyond the imagination of most people.
What should you and I do, however? Since nobody will be coming to our aid with a bailout package, if it is to be, it´s up to me. Do a simple written budget where you have a game plan for your income because we cannot change what we do not acknowledge. Then have your own bailout account – a savings account that is not hooked to your bank card (just in case…) with $500 to $1,000 in it for a real emergency. After that, get real and get serious about your debt and monthly payments that are killing your hope for financial freedom. Focus on one at a time so you don´t get that overwhelming, what´s the use, feeling. It´s not hard to know where to start: take your smallest balance and put every spare dollar you have towards it.
After that, target the next one with the freed up money from the first on and so on. Keep the one you´re focusing on taped to the fridge and make it a game and not a pain and you´d be amazed at the results. Because if you don´t – who will?
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