On the heels of an $85 million government bailout of insurance giant American International Group, the Bush administration is calling for a $700 billion bailout of financial companies, warning that the economic system is on the brink of disaster.
A tongue-in-cheek e-mail is still circulating opposing the bailout of AIG. The writer jokingly proposes that the government should divide the money among adult Americans. Divided among 200,000,000 American adults, after 30 percent in taxes, the writer estimates each person would have $297,500 to spend at his or her discretion.
"Pay off your mortgage housing crisis solved. Repay college loans what a great boost to new grads," the writer muses.
There have been no discussions in Washington about dividing billions of taxpayer dollars among the masses as lawmakers debate two possible plans to shore up the economy.
According to the Associated Press, "The legislation the administration is promoting would allow the government to buy bad mortgages and other sour assets held by investors, most of them financial companies. That should make those companies more inclined to lend and lift a major weight off the national economy that is already sputtering. But a significant number of lawmakers, including many House conservatives, say they're against such heavy federal intervention."
Dr. Tim Bisping, a professor of economics at the University of Central Arkansas, said if the plan is structured properly, it can have a calming effect on the market.
"I doubt the proposal will actually stimulate the economy, but it could prevent it from being derailed by the freezing up of credit markets," he said. "This is a policy aimed more at averting a political crisis than promoting economic growth. The economy has been showing some signs of weakness, and this policy will have little impact in that regard."
Bisping also discussed the significance of more government involvement in private business.
"From a long-run growth perspective, this may be the single most important issue," he said. "The government has already been involved in unprecedented ways, and there have been discussions of changing the ways in which financial markets are regulated. New regulation, if it occurs, could certainly change the way some institutions do business. Furthermore, just as government needs to have a clear strategy concerning its involvement in this situation, it is important that officials clearly state how they will go about exiting these markets."
According to the Associated Press, House Republicans have demanded consideration for a plan of their own that would involve less government intervention and cost less than the $700 billion plan proposed by U.S. Treasury Secretary Henry Paulson.
"Under their plan, pushed at a White House meeting Thursday by House Minority leader John Boehner, instead of the government buying the distressed securities, it would insure them," the AP reported.
Bisping said while details are still sketchy on the House Republicans' plan, it has some desirable properties.
"Primarily, this would involve a much lower level of government involvement and would rely more heavily on the private sector. This would undoubtedly make it a more efficient process. I don't know if the net expense to taxpayers would be much different from the Paulson plan, but the long run impact on the economy would be more favorable as it would involve less government debt and lower inflationary pressures," he said.
He noted the fears if lawmakers do not take action.
"The fear is that if nothing is done, credit markets will essentially freeze, causing a significant economic downturn. The stock market could suffer, businesses and consumers could find it very difficult to get loans, and this would translate into lower GDP and higher unemployment. Basically, we could face a significant recession," Bisping said.
In comments to the Associated Press, lawmakers indicated they would work until they reach an agreement. One lawmaker estimated an agreement will be reached by Sunday.
(Staff writer Rachel Parker Dickerson can be reached by e-mail at rachel.dickerson@thecabin.net or by phone at 505-1277. Send us your news at www.thecabin.net/submit)
