Bailout: “Hey Buddy… Can You Spare $2,300?”
Thursday, September 30, 2008: Issue #562
by Karim Rahemtulla, Investment Director, Smart Profits Report
How can you tell when a politician is lying?
Simple… he’s moving his lips!
In the wake of Congress’s failure to approve the much-ballyhooed $700 billion Wall Street bailout package on Monday, the world’s markets reacted by losing more than $1 trillion in market value.
Was it really necessary? The answer is, “Yes… but not really.” Let me explain…
A Bailout Dreamed Up By Buffoons
Let’s first examine the question of what a bailout really is.
A bailout is when there is no hope for return or for recovery of monies put forth. So is this plan really a bailout? Is losing trillions of dollars of market value from homes, the stock market, wages, and savings a better option than buying up lousy debt that may have some chance of recovering value in the future?
Apparently, for the sake of political expediency, the answer is “yes.”
If the U.S. Congress was really working on a financial bailout, then the market deserved to sell off - and deserves to sell off again. That might sound callous, but Congress is apparently being run by a group of ostriches and/or by those who never went to business school, or even worked in a business.
Moreover, it’s apparent that political gain is much more important than the livelihood of “average Americans,” who they are claiming to protect.
For example:
- A car dealer in Utah will not make his payroll this week…
- Retailers who finance their Christmas lines cannot find adequate financing…
- Seniors who count on their portfolios to finance their retirement are out of luck, making negative returns in Treasuries, or risk losing everything in the market…
- Large businesses are laying people off left and right.
There are hundreds of other examples like this. And the lack of credit is greatly exacerbating the slowing economy’s fate.
But the Washington rhetoric remains the same…
Bailout Rhetoric Shows Hollow Words From The House
As the mess continues, those in Congress and the media are happy to promote this plan as a “bailout,” thus stoking the frenzy of millions of Americans who have lost faith in the system and the government.
I heard a Congressman from Texas yesterday talking about how he didn’t want to saddle his grandkids with this debt - which amounts to an extra $2,300 and may be recouped over time.
But I bet he spends more than that in a week, throwing luncheons for his lobbyist friends. In his world, though, that’s different, because he sees a definite return on his outlay in the form of some type of future kickback.
Here’s the problem: Unless a politician sees personal gain, he’s not going to vote for something. That much is now crystal clear thanks to the bailout. And before you write to me, I realize that this is a broad generalization. There are some honest politicians out there. Heck, there may even be a couple who understand the difference between a bailout and stabilization package!
So am I angry? Not at all…
Bailout vs. No Bailout Equates To Stabilization vs. No Stabilization
I am dumbfounded. Those same naysayers who were clamoring “no bailout” will soon be clamoring for extended unemployment benefits. Either that, or they’ll wonder why they’re working an extra five years before they retire because of that “Depression Of 2009.”
I wasn’t alive during the Great Depression, but I know many who were. They still horde things today remembering how scarce everything was - even if you could afford it.
So let’s weigh the potential outcome. Yes, it’s quite simplistic, but it makes the point…
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FINANCIAL STABILIZATION PACKAGE |
NO STABILIZATION PACKAGE |
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We pay an extra $2,300 |
We don’t pay an extra $2,300. But… |
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Unemployment shoots to 7% to 10% |
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Americans retire at 70, instead of 65 or earlier |
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Home prices plunge another 30% |
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The stock market falls 30% or more |
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Government Treasuries and CDs pay 2% or less |
The list could go on. And all those who boldly said “no” to the stabilization package get to say at the end of it is, “Yeah, but we sure showed ‘em!”
I believe a stabilization package will pass - and soon. And personally, I’m willing to take on an extra $2,300 (which may or may not be paid back) versus an alternative that I know I don’t want.
But I guess there is a reason why Congress only has a 9% approval rating. They just don’t get it.
Karim
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