The Bailout Plan

As I am sure you have indeed read, the economy has began to take on, as some economists would say, a “recession.” The United States has seen numerous signs of this, the stock market plunge and the fall of the housing and mortgage companies being a just a few of the many issues at hand. The mortgage companies in particular have suffered greatly, most of them being on the edge of bankruptcy.

I simply cannot conclude that giving a 700 Billion dollar bailout to these bank institutions is the correct line of thought. The bankers and mortgage brokers knew exactly the great risk they were taking when they offered loans to people with poor credit/credit characteristics. They willingly handed out thousands of loans to people that could not afford them, knowing they could make money off of the plight of the poorer people in America. The influx of subprime loans within the last ten years, along with the current economic slump has left these bankers and brokers in major debt, and now the average American is left to pay for it. A New York Times article said that

To put the bailout in terms everyone can understand, it will cost every man, woman and child in the United States about $3,300 to finance the package.

That would be an average of about fifteen thousand dollars for a family of five. I cannot see why normal, responsible American tax payers should have to hand out their hard earned money to fix this plight, while those responsible for the mortgage crash to get a figurative pat on the back for their own ineptitude. The L.A. times conducted a poll about the bailout deal, saying that:

Asked whether the government should use taxpayer dollars to rescue financial firms whose collapse could have adverse effects on the economy, 55% of the poll's respondents said they did not believe the government should be responsible for funding a bailout plan.

As the polls are beginning to show, Americans are not going to allow this plan’s blatant disregard for their money. It’s not only financially wrong; it sets a terrible moral example for the business world and politics in general. This sets a precedent that if you abuse the economic system in the hopes of making extra money for yourself, and it backfires, the government will pay your debt, and eventually leaving the final tab with honest people. If we never had to pay for bad decisions in life, we would never learn to make the right ones. The same line of thought applies here.

My solution is synonymous with many solutions of the nation’s top economists, and that is for the companies to declare bankruptcy. I have several reasons for this. Firstly, it would leave the penalty for the crash in the hands of those who created the problem. According to Harvard economist and lecturer Jeffrey Miron, “Bankruptcy punishes those who took excessive risks while preserving those aspects of the businesses that remain profitable.” I think he has a good point. If they were to declare bankruptcy, the mortgage brokers and bankers would have to pay for their wrongdoing, while the business itself would go to the creditors and be taken over by a company better suited to run it. Mortgage companies and banks could continue to run hopefully under the supervision of someone who would not abuse their power.
The first bailout plan has been vetoed, however, the same bill with a few slight changes is going before Congress to be decided upon. Though the bill has been somewhat changed, it still allows for the people responsible to slip away from their problems and the money is still being taken from the American taxpayer. After reviewing the issue, and studying both sides of the argument, I cannot find reason for allowing this bill to be passed.