On Wednesday night the President of the United States, George W. Bush, addressed the nation concerning the proposed bailout of United States banks and tottering financial institutions. Reactions to the proposed bailouts were mixed and even some Republicans criticized the administration's proposals. President Bush urged for the immediate passage of the bailout plan stating that "We're in the midst of a serious financial crisis, and the federal government is responding with decisive actions." Bush also stated that failure to pass the bailout plan could lead to a "long and painful recession."
The current United States financial crisis has affected stock markets, commodities, and Forex markets worldwide. Confidence in the United States dollar is waning with many people worried that the bailout policies proposed could lead to a devaluation of the United States dollar. The financial crisis could not be more ill timed with the United States suffering a massive debt from the combination of the War in Iraq, rising oil prices, and massive infrastructure damage from recent hurricanes. The average American is already struggling financially and this financial crisis is only making things worse.
The Bush plan calls for the government to buy 700 billion dollars worth of troubled assets. These assets consist mostly of mortgage backed securities whose values have declined swiftly when the housing market imploded. Initially the White House had taken a hard line concerning the bailout plan but has indicated a willingness to compromise in order to ensure a speedy passage of the bailout plan.
The Bush administration compromised with Democrats who demanded that the pay of CEOs of troubled firms be limited. Addressing such concerns Bush stated that the financial rescue "should make certain that failed executives do not receive a windfall from your tax dollars." Bush also invited both presidential candidates and key congressional leaders to the White House to work out a compromise on the bailout. Bush also warned that failure to pass the plan would result in dire economic consequences such as disappearing retirement savings, rising foreclosures, loss of jobs and closing of businesses.
One can only hope that politicians, for once, can put partisan politics aside and work together on a plan that would benefit both business and the average American worker. With the United States dollar regarded as unstable in some Forex Markets, failure to act could result in a disaster and the voters are not likely to forget such a financial disaster come election time.
However, this Herculean task may be too overwhelming even for our energetic president. It is like a sinking ship, and the captain is frantically bailing out water: it may be a heroic but fruitless task.
The main problem of this current financial crisis is that no one in the financial world could really get a handle on the severity of the innate problem. Just a few months ago, even Bernanke, the Federal Reserve chairman, also an expert on the Great Depression, thought the initial financial bailout would stop the bleeding of the whole financial system. Now, the magnitude of the crisis is beyond every one's guessing. In short, nobody in the financial world had expected the catastrophic impact of the fallout of this financial implosion.
It is by no means the fault of President Obama, or that of Bernanke. Both have reacted promptly, efficiently, and relentlessly to the crisis. The problem is multifaceted and just too complex for any human mind to get a grip on until it began to unfold itself.
There are simply too many bubbles involving too many levels of the financial sector - and they all bust one after another, causing the rippling domino effect across the financial globe. Over-priced bonds backed by bad subprime mortgages, packaged by unethical Wall Street firms sold to greedy investors. It was a pack of lies, myths, and phony prosperity that had fed on itself for decades, and now is the time of reckoning. The result is delinquent mortgages, bad loans, bankruptcies, leading to little or no cash flow - and hence the financial world is grinding to a halt.
The root of the problem is that the prosperity in the past decades has been a phony one - created out of thin air. It was an illusion, and now everybody has become disillusioned. It is like waking up from a wonderful and mesmerizing dream, and one still clings desperately onto that dream, refusing to be brought back to the real world.
Why President Obama's bailout plan may not work!
The explanation may be quite simple. According to Albert Einstein, insanity is repeatedly doing the same thing and yet expecting a "different" result. This is precisely what the U.S. government is striving to do with the bailout plan.
We have got ourselves into this financial mess, because, for years, the Americans have been spending the money they don't have to buy the things they don't need. The current crisis is a product of reckless spending and euphoric optimism. Now, the bailout is similar in that it intends to spend trillions of dollars that the government doesn't have to bail out the banks and firms that don't deserve - or may not even eventually survive after the bailout. The bailout is creating an illusion that things will improve, just as the American people have created an illusion of prosperity that would go on forever.
Recently, the Treasury Secretary blasted investors for not knowing what they were buying, which led to this current financial crisis. Ironically, isn't this is exactly what the government is currently doing - repeating the same mistake? Part of the bailout plan is to buy troubled mortgages and bonds at a fair price so that the banks will take the cash and therefore be able to make new loans. However, buying these troubled financial instruments is not only difficult but also risky. It is tantamount to what the American people have been doing - buying things they do no need with the money they do not have.
President Obama's bailout plan may pump trillions of dollars into the financial world, but whether it will solve the problem is everyone's guessing. Robbing Peter to pay Paul is never a solution to any problem - at least not a problem of this magnitude.
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