The Economic Bailout Plan - Essay Example

The Economic Bailout Plan The economic bailout plan for the financial sector of the economy does not come without objections and also comes with a lot of recommendations in terms of how the money should be used. However, it must be noted that researchers such as Clendenning (2008) and Garrett (2008) both note that the government in general and Wall Street in particular share the blame for the economic crisis. However, it is also simple to understand that the best hope for a solution to the problem remains the government (Essen, 2008).

In such a situation, it can be shown that the best method of dealing with the crisis remains the distribution of funds directly to regional banks rather than pouring the money down the stock market which is functioning merely as a black hole. The first and most important reason for this is that government buying of stocks and shares would be nothing less than the government seemingly rewarding what has been called the casino mentality of Wall Street (Clendenning, 2008). The government has to show that it backs those banks which have suffered unfairly due to the economic crisis particularly those regional banks which did not engage in risky investments such as those which went down when their risky loans did not give them the returns they expected.

It must be noted that the present situation in the American economic system is simply a result of risky decisions which did not bring the expected profits. These decisions were all taken months ago but no one in government who was supposed to regulate the decisions taken by banks appears to have seen this coming. In fact, even if they knew about what the banks were doing, it appears that they have ignored it completely. The financial crisis which started with subprime lending issues has now come to a point where major banks, giant financial institutes and even insurance companies have failed citing it as the root cause.

Investors across America as well as those in the international markets have all suffered the ill effects of such risky decision making. However, while larger institutes and financial powerhouses may be able to recover from their mistakes and even come back on a solid footing in a few months, smaller banks and lending houses may find themselves wiped out even if they did not engage in subprime lending. The government therefore needs to judge the help it gives to various banks on two fronts. First of all it must be judged how much blame the particular bank gets for creating as well as exacerbating the situation and the second question is how much the body has been hurt by the crisis.

Both these measures are quite logical since it would be ethically and perhaps even economically incorrect to rescue banks which are beyond rescue at the cost of those small regional banks that give many Americas financial backing and the economic stability they need at this point in time. In fact, financial analysts such as Essen (2008) consider it a total failure of the American economic system (despite the heavy regulations placed on banks) to control the risks they were taking. Undoubtedly, the banking sector remains one of the more heavily regulated sectors of our economy yet the current situation has come to a point where financial experts are calling it the “worst financial crisis since the Great Depression (Essen, 2008, Pg. 1)”. When we look at the root cause of this crisis, we find that it was not only created by large banks but also by giant American lending institutes such as Fannie Mae and Fannie Mac.

These are not regional organizations but nationwide bodies which took decisions that allowed their loans to be given without the proper required scrutiny. However, the overall burden of their bad decisions is being borne by the community at large and regional banks in particular since the economy is eroding along with consumer confidence. Instead of reducing the risks undertaken by banks which engaged in risky behavior, giving them more money would only encourage them to behave in a risky manner in the future.

The need for providing more assistance to regional banks also comes from the ideas given by Mishel et. al. (2008) since their research shows that direct investment in local infrastructure support is probably more beneficial than simply handing out money to Wall Street gurus or even the Treasury Department itself. The local financial infrastructure connects directly with the performance of regional banks and their ability to handle the crisis which is only deepening as time goes by. Since many working families and small businesses across the country depend on their interactions with these banks they deserve the support of the government.

Writing for the New York Times, Herszenhorn (2008) reminds us that the worsening conditions of the economy may not be helped by seven hundred billion dollars alone since the process of creating jobs, increasing the ability of small businesses to grow and helping the economy come back to the path of growth is the right way to go. Without these steps, no amount of money given to giant banks or the stock market itself will result in real economic development and may just be “a costly Band-Aid (Herszenhorn, 2008, Pg.1)”. Undoubtedly, what our economy needs is a lot more than just a band-aid since it has continually bled for more than a year.

The economic development and the restoration of the confidence of the people in the American economy will not come overnight and will require tremendous effort from all concerned parties. In these efforts, the first step remains giving assistance to regional banks and other small financial enterprises and the strong recommendations of financial analysts make it an easy decision to implement for the benefit of the economy. Not only does the idea make financial sense, it also gives the government a chance to show that it is doing what is best for the people of America rather than doing what is best for big business.

Works Cited Clendenning, A. 2008, ‘US 'casino' mentality blamed for planet's meltdown’, [Online] Available at: http://ap.google.com/article/ALeqM5gOZTtahVNy4kICgeQueTNyWQybJAD93H9HL80 Essen, Y. 2008, ‘Financial Crisis: US calls on world to save banking system’, [Online] Available at: http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=&xml=/money/2008/09/22/cnpaulson122.xml Garrett, E. 2008, ‘Perry: Federal government 'inept' at solving financial crisis, other problems’, [Online] Available at: http://www.

dallasnews.com/sharedcontent/dws/news/nation/stories/DN-perryecon_01tex.ART.State.Edition2.26d5efa.html Herszenhorn, D. 2008, ‘Bailout Plan Wins Approval’, [Online] Available: http://www.nytimes.com/2008/10/04/business/economy/04bailout.html?bl&ex=1223438400&en=f895f0fd514c47fb&ei=5087 Mishel, L. 2008, ‘Bailout plan must help the middle class and grow the economy’, [Online] Available at: http://www.epi.org/content.cfm/pm129