To say that the situation on the Street is alarming is like saying that a tornado is windy. The financial backbone of the economy is in dire need of help, and in the excitement, a $700 billion bailout is taking shape in the halls of Congress. But in the rush, a number of major problems are being overlooked or simply ignored.
This is not the first time Wall Street has made a huge financial mess and received a taxpayer-funded bailout to fix it. If we keep rescuing banks from their own greed, who’s to say that the Street won’t come to rely on taxpayers to be an insurance policy with no limits and manage to make an even bigger mess next time? When are those responsible going to get punished and how?
There’s also the problem of the bailout’s sum. The current crisis is caused by rapidly devaluing assets. Banks have no idea how much they’re worth and their underwriters have to cover yet unknown, but definitely mind-boggling, claims. This uncertainty makes the size of a bailout extremely difficult to predict. Is $700 billion enough? And we shouldn’t forget that the government just asked the taxpayers to prop up the largest loan portfolios in the country to the tune of $5 trillion. How much more money will we need to cough up? Nobody knows. Nobody.
We certainly need to help the economy survive and recover, but rushing to throw money at the problem without figuring out its real scope and how we can prevent such disasters from happening again is not the way to do it.
A firestorm brewing for years in the virtual vaults of major financial institutions has engulfed Wall Street. Giant companies with hundreds of billions of dollars at their disposal suddenly have no idea how much they’re really worth and how much they stand to lose if their bets in other companies fail. This horrifying revelation is threatening to implode the financial-services sector unless the companies can find the time and money to figure out what’s going on and separate the assets from the junk. Fannie Mae (FNM) and Freddie Mac (FRE) will get such a break after being taken in by the government, but financial firms are running out of resources and they’re panicking.
While it’s bitterly unfair that we taxpayers have to clean up after the poor decisions made by the Street, we need to realize that it’s our money we’re going to rescue. Banks used the money in savings and investment accounts to make the bets they did. Thousands of companies were built on the financing provided by the troubled financial firms, and thousands more are partly financed by them. If the banks are allowed to implode, it’s very possible that all the businesses built or propped up by them will also fail or be forced to drastically downsize, and many of us will find ourselves laid off and with nearly empty investment accounts.
In a twisted, backward way, the planned bailout of the Street is a way to defend our jobs and rescue our savings. We can punish those responsible for this mess later. Right now, we need to prevent what would be a mortal blow to our economy and ourselves.—G.F.
Please send us your ideas for new Debate Room topics. If you're an academic, association officer, or other industry expert and would like to write a Debate Room essay, send us a query. Questions? See the