Today the U.S House of Representatives has ruled against the much talked about proposed 700 billion dollar bailout. This is the biggest bailout since the Great Depression, and even though many are disagreeing with the government on this one, it might be one of the only ways to keep the economy from completely collapsing.

What is the Reason for a Bailout?

A bailout is a way to control the economy from collapsing. In summary, it’s when the government issues money to corporations or in this case, banks, on the verge of bankruptcy to keep the banks active and this overall strengthens the economy. Since U.S banks have been giving out credit to people that originally should not have been able to receive credit with their bad records, once high unemployment rates began to hit the country, many people could not repay their credit cards, their home mortgages, and other borrowed monies, so the banks began to seize their investments. Foreclosures took place and thus the real estate market weakened and the price of homes dropped dramatically. Now that everyone is trying to liquefy their investments, this in turn has led the market downhill, and the government needs to give money to banks to keep them alive so that they continue giving out credit to people (much more tightly controlled) to stimulate the economy.

Why Even Have a Bailout?

To get the economy back on its feet, major corporations and banks that have been weakened or close to going under need more money to keep them going. This is a great way to stabilize the economy and keep the market from crashing completely. This is a form of controlling the market, but ever since the Great Depression, U.S has not had such a crises on their hands, and if they don’t find solutions quickly, another Great Depression is not a far-fetched possibility, but a serious risk.

More Action is Required

Shouldn’t the Government use the $700 billion to help the People?

By helping the banks, the U.S is helping the people. Yesterday almost any fool off the street could have come in and gotten a loan from the bank, today those banks are on the verge of bankruptcy, and if quick measures are not taken, tomorrow you might be keeping your weekly pay-checks under your mattress instead of in a savings account. Sure, the government can use the money to help a lot of ordinary people out from sleeping in the streets due to unemployment, but the money needs to be circulating within the economy and in the long-term the bailout is the most efficient way the government can allocate this money.

If the Bailout Bill Gets Passed…

If House of Reps passes the Bill then take all the loose cash that you have (which probably isn’t much) and invest it in the banks that are receiving some portions of the money, because more than likely their stocks will rise.

Well, that’s my two cents. Leave a comment with your thoughts. Best of luck my fellow people.

Photos from here

This post was submitted by Donald Alexopolus.