The current plan only treats the problem but dosen't cure it. I suggest that they take that money and distribute it evenly to every lower middle class and poor person. Not the wall street elite.
I am new to these forums but saw this and had to chime in.
If you are a small to medium sized business owner you probably got a few phonecalls today from your NET 45 distributors, which is an exact reflection of WHY this bailout will work.
Let me explain in layman's terms.
The "Bailout" isn't really a bailout, it should not be called that, it should be called an economic stability act or something similar. What it is doing is not giving money to rich people, its buying up all these sub-prime morgage securities that nobody will touch with a 9 foot pole right now and is what is causing everyone to scurry.
Since nobody will buy them, banks no longer have any liquid assets. Without liquid assets banks cannot borrow from other banks, and therefore can't loan money. In order to be able to loan X ammount of dollars, an FDIC insured financial institution must have at least 10% of X in a viable liquid asset. Since Fannie and friends went down the tube these banks which have been coheresed by housing acts in 1977 and 1996 have been taking subprime loans on guarantees from the government sponsored companies.
The most recent housing act in 1996 lowered regulations and gave postive re-enforcement of Alt-A loans for homes. These are known as Liar Loans or more common, NINJA loans, meaning No Income No Job no Asset Loans. These were given to mainly povertly level home buyers but also to real estate speculators. Of course, before that act in 1996 nobody would have touched any of these people's poor credit and now asset's loans, but with Freddie and co. buying them up why not?
Since the banks could sell the loans they figured the best way to get the people in is show them the low monthly payments and not the balloon of the adjustments. Uneducated people who were the majority purchasers fell for the bait and defaulted on the loans. Comes to Economics 101, READ THE FINE PRINT.
Now to his credit, Bush did recognize this as well as McCain. Bush asked for legistation, McCain put the bill together, and the legislature said "hell no." Why you ask? Who want's to be the one who told a low income family they can't get a home? You lose votes? Add to the fact nobody wants to be kissing homeless babies, so Washington just turned its head.
Now that this is clear, what will this do to fix it?
Buying out all these mortgage securities would give the banks some liquidity. That means they will be able to loan money again. Back to the small-mid businesses, if you deal with the finances of one you have had creditors calling to see if you can pay early, moreso if they are on a NET 45 status with you. Why? Because banks are refusing to loan them the money to buy the raw product they need to sell to you. Our entire economy works on credit now.
Take the paper industry, you run a kinkos. Dunder-Mifflin just called you because they need you to pay your bill early, you don't see this as a problem since it was just mid-terms and you made a good profit this month. You ask why... Well Dunder-Mifflin hasa contract with Georgia Pacific. In-order to keep the contracted prices with GP, they have to buy 2 million in paper every month. They usually go through say, Chase to get a 2 mil loan every month since they do not have that kind of cash laying around, and buy the paper, and with the profit over 2 mil, they pay the employees and such.
Now Chase doesn't have as much liquidity since nobody is buying up these loans, so they can only loan Dunder-Mifflin 1 millon dollars. Well now Dunder-Mifflin is screwed. Since they can only buy 1/2 their paper they ask customers to pay early in hopes this "bailout" gets passed so they can get a loan. Even then they only get about 25% back so they have to make due with 75% of normal inventory, hence, lower sales. They have to fire people, you don't get all the paper you need, so you have to buy from other places. These places won't even take NET 30 with the current economic status, so you have pay up front, you can only do that for a while before you have to lay off people, since you can't get the credit to buy the paper.
Now you have unemployed people at the papermill since they cannot sell any paper, then you have Jim and Dwight laid off at Dunder-Mifflin because they aren't selling enough since there isn't enough inventory, and you go out of buisness because you cannot afford to pay your employees.
Its long, its detailed, but I hope the bube-toob references help explain it. Sure its a little socailism. It stinks, and we all hate paying off other people's debit (re-distribution of wealth anyone?) Its just something we have to do if we want to avoid a depression. A recession is enevetable, its up to the government to quit pointing fingers and making dumb comments like Pelosi did (and ruined the bill) and just get it done.
The problem is this is an election year, and with a congress with its worst approval rating in 80 years scared for their jobs, everyone is going to be pointing fingers and nothing is going to get done. We will be wishing for the good ol' Jimmy Carter days.