US $700 Billion Not For Bailing Out Bad Loans?

From the start of this bail-out (Save Our Sorry bums) plan, we were leery of such drastic measures. Such a risk would put our children’s children in debt and there was still the risk it wouldn’t be able to do what it needed to. Congress bickered and the only logical explanation we could come up with was eventually these bad loans would have to be repaid and the American people had a shot at getting some of this money back. So, understanding the reasons behind why we went forward with this plan you can also imagine how shocked I was to learn that not a month later the treasury had decided to use the money for other purposes. I’m a little frustrated that Congress could hand off such a huge sum of money with no strings attached. When I read the $700 Billion Bail Out plan’s rough draft the language didn’t seem to say “here take this money and do whatever you want with it.” In fact, I remember specific sentences referring to “the buying of bad loans” and “for the purposes of alleviating major US financial markets.” Does the treasury have so much power and influence in today’s chronically anxious financial markets that they can decide to do whatever they want with $700 Billion? Now is seems US Treasury Secretary Henry Paulson thinks the money would be better spent buying up company stocks and selling federal bail-out bonds. I’m not to sure how I feel about tax dollars being used much like private equity to prop-up banks without requiring them to reform their practices. I think the most disturbing twist to this tale is that credit card companies and other lenders like those for student loans are now included in the mix. Oddly enough, I’ve never seen any report saying the credit card companies were hurting. I thought the opposite was true…people can’t pay their credit cards so they start piling on credit card debt and the card companies benefit from the interest incurred. Frankly I’d rather see the government bail-out car manufactures than credit card companies. I’m just wondering how we made the bank crisis into a credit card crisis? The two are linked so intricately that if you were to save the banks, you would be ultimately saving credit card companies too. Mr. Paulson mind explaining the rational there?

BBC Business Editor went so far as to say these new bail-out bonds were akin to the Chinese nationalizing of the private sector. I agree with him completely. The US government has never entered it’s self as an entity into the private sector for fear of losing impartial judgment. Buying up company stocks puts you past the line of impartiality and running towards nationalizing of businesses. The Central Bank has enough power to bend the economy, I guess I’m just trying to find where the balance is here? As part of these new bonds the Treasury is suggesting the US shares would have no voting rights and simply be a privileged share holder yet board voting is the last thing businesses would have to worry about with huge government stock investments. If the market were to drop below it’s current position the government could lose all of it’s original investment and we would be that much further in debt and conversely, what happens if the market rebounds? How much with government shares be allowed to make before selling off their shares. If and when they do sell these shares will the company lose its stability and acquired reputation for having a government secured position. Will government contracts be more likely to use businesses with government funding? This is new territory for business and the US government alike. In a strange twist of irony, maybe we would be well served to observe how the Chinese government handles these matters? Whatever the case, the new power the US Treasury seems to be vested with is compromising to say the least. Hopefully the newly elected president and congress members brought a few financial buffs with them to sort this out and provide some checks and balances here! There could be definite positives of having a trust funding government but on the same regards I don’t think we can sacrifice what little transparency and fairness our government system contains for business.

Check out this awesome Credit Crunch TIMELINE put together by the folks at BBC!