There’s lots of hot debate at present as to why the US Government is supporting the Bailout plan in its current format. The people I’ve chatted to over the past few days all strongly disapprove of the plan. We keep coming back to the same question: why is the Bailout progressing in its current shape and form, whilst there seem to be alternative proposals out there – which are not being publicly debated?

Pressure for any solution: I put an opinion forward that there was pressure to adopt a solution, any solution, because the world economy is in unchartered territory (an unprecedented mess), economists don’t know what policies to adopt that work best in this situation, and there is panic in governments from not knowing who to turn to. Quick action of sorts is seen as better than inaction.

Merits of inaction: Inaction might have its merits, although it is an election loser in the USA. I wrote at length recently about why absence of any Bailout might actually be an option (a very painful one, indeed, possibly an equivalent of entering another Great Depression) – compared to a lengthy, expensive, painful, AND untested solution of the Great US Bailout.

Theory on Government paying off financiers: More interesting speculative thoughts as to why the US Government might be keen to rush into the Paulson plan was presented by Dandelion Salad on the 2nd of October. Quoting them –

What is happening is that the Bush administration is engineering a massive raid on the Federal treasury to pay off the people within the financial industry who have been operating the housing scam because the politicians told them to do it. This is hush money.

The people in the financial institutions who are getting the money will be passing it on to the big banks that leveraged their criminal lending practices. The giant sucking sound you hear is almost a trillion dollars of future taxpayer earnings going into the vaults of the nations’s biggest banks, such as Citibank, Bank of America, and—the pet bank of the Rockefeller family—J.P. Morgan Chase. Much will also go into the vaults of foreign investors such as the Bank of China.

A scary thought, isn’t it? I don’t think this is exactly the whole story of what is happening, but read the whole article – it’s a pretty interesting read.

Further slump in US stock markets: As a closing thought, a comment about current stock markets. Despite the Bailout plan being adopted in the US on Friday, US markets actually closed lower last week than they started on Friday, having temporarity risen during the day.

The newest shares slump reflects fears that the $700bn Bailout package might not be sufficient to provide enough liquidity in the markets to prevent a US recession. In economic speak, “expectations of the Bill being passed were already incorporated into stock markets” so once the Bill was adopted, the market looked to new information to respond to – and this came in the shape of rising unemployment figures.

Whatever happens next, we’ll have to try and keep a cool head, tighten our belts and ride out this storm. There are no miracle pills to take that might make this landing any softer.


Copyright 2008 by CuriouslyInspired