Wendy and I have spoken on frugal living, and we’ve been emailed asking our opinion on the top news of the $700bln bailout. Since we are the parents of 14 children (soon to be 15), a most natural question is “how can you afford it?” Our lengthy response is in our product “Cheaper by the Baker’s Dozen” where we outlined strategies to frugal living. Really, it stems from a basic understanding of economics, basics I learned getting my MBA and we both have learned as small business owners.
The current Wall Street Bailout that is struggling to pass the House of Representatives is being touted as needed, claiming the current situation in the markets is the worst since the Great Depression. Correction: it is the scariest SOLUTION to economic hard times since the Great Depression, but it is not the Great Depression.
While most people (including politicians) find economics complicated, there really isn’t much to understand. First, let me say, that $700bln is very close to a TRILLION, an incredible amount of money. Our government has NEVER spent this much money on ANYTHING, including defense (see this chart). There are approximately 140 million taxpayers in the United States. $700bln could cut a check for $5,000 to each of them. It is absolutely horrendous that the President, the Speaker of the House (who, by the way, today got busted funneling money from her PAC to her husband), and both presidential candidates are unanimously saying this bailout should be quickly passed.
Second, the bailout isn’t bailing the taxpayer out. This is the infuriating thing, for this is how it is being packaged by Washington. This $700bln is taxpayer money to bail out rich banks and irresponsible mortgage lenders. Banks are businesses, and when businesses fail, they should fail. These banks can file bankruptsy and get out of the market–let the government “bail” them out that way. But why should taxpayers pay their bills so that they can continue to make the same stupid financial decisions they made to drive their businesses into the ground?
Third, economists have been crying wolf about this for several years. When lenders are giving $250,000 second mortgages to people who don’t have jobs, it doesn’t take a financial genius to figure out that foreclosures are in their futures. Our politicians (the ones who are so quick to spend our money) want to bailout Fanny Mae and Freddie Mac so that they can continue? Follow the money, folks. The FMs have donated millions to these politicians, and is it any surprise that the leaders of the bailout are the biggest recipients? Christopher Dodd, Barack Obama, and John Kerry are the TOP THREE RECIPIENTS of FM political donations since 1989. This is a conspiracy (see here).
There is no doubt in my mind: this government bailout is a politically driven atrocity that will socialize our economy and set politicians up to be the drivers of Wall Street. American taxpayers are seeing through the haze and letting their politicians know that this is unacceptable.