As everyone probably know, the Congress and the President are currently battling over the details of a $700 billion dollar bailout plan for the failing American banking sector. So, in the interest of your edification, enrichment, and/or pleasure, I thought it might be helpful to outline some basic facts and misconceptions about the bailout plan.

1. Everyday fluctuations in the stockmarket doesn't matter all that much.

This is not to say that a week, or even a horrible day, of falling stock prices aren't ruinous for certain individuals, but for the economy as a whole, not every -400 day is the sign of the apocalypse or a warning of imminent market collapse. As a whole, I think we give too much credit to the stock market and not enough examination of the specific commodity and specific business stock prices. The stock market as a whole tends to recover, and recover quickly, from all but the worst day or week (or even month)-long fall offs.

 2. What does matter, is inflation and the weakening of the dollar

The coverage given to the bailout plan and the debate in Congress mainly covers the lack of/demand for oversight. While that oversight is important, I think it's equally as important that we examine the impacts of this $700 billion dollar behemoth. Namely, the fact that such rampant borrowing by the US Treasury would lead to rampant inflation and increased commodity prices.

The term weak dollar always get thrown around, but honestly, few people ever know the full effects of it unless they're oil executives or pro-basketball stars. True to form, even the proposed massed deficit spending produced by this current administration and their bailouts caused, according to this CSM article:

• a $15 dollar per barrel raise in Crude Oil prices


• a $43 dollar rise in gold


• a drop of 2.25% in the dollar

Essentially, this means that gas gets more expensive and the cost of living generally increase. Given that a lot of folks won't be getting Christmas bonuses this year because of the state of the Economy, this creates a budget crunch for a lot of families. So this is how the giant bailout package hurts the consumer despite "rescuing" Wall Street. Not only will we be paying for this bailout, we'll be paying 2 fold because for rising oil prices and falling dollar values.

This, of course, is just part of the damge, as the weakening dollar will be felt in terms of trade with the EU, China, India and Japan, and the weakening dollar will create aftershocks in countries that peg their currency to the dollar, like Argentina.

 3. This is not the final solution, merely a band-aid on an ever-opening wound

 While it might surprise a lot of people, this is not the first time a great mortgage crisis has struck the US since the time of the Depression. In fact, the 1989 Congress set up the Resolution Trust Corporation to alleviate some of the pressure on the financial markets caused by more than 1,300 failures of mortgage lenders between 1980 and 1994. What this corporation did, in the words of this Economist article, was set up a new governmental body which dealt directly with the bankruptcy of these lenders. As described:

"Not a moment too soon, suggest the results of a new study by Luc Laeven and Fabian Valencia, two IMF economists.* They examined all systemically important banking crises between 1970 and 2007, creating a database on how much financial crises cost and how they are resolved. The evidence is clear. Tactical crisis containment is expensive and frequently inadequate. In most financial meltdowns a comprehensive solution was required, and the sooner it was provided the better."

Indeed, during times of great banking crisis, different governments often responded by first injecting capital, and then finding a way to bring stability to the central banks - whether by government deposits or regulating and increasing capital stock or a variety of other methods.

In short, don't expect this to be the last hit the US Treasury takes from this crisis. In fact, it's better to see it as a first in a long line.

 4. Government controlled programs need multiple layers of oversight and no single-actor programs

Most government-controlled methods of market control fail because politicians, especially ones subjected to re-election once every 2/4/6 years, try to dominate these programs in order to generate votes. This leads to general failure of these systems.

 This is why the current system proposed, one with the Secretary of Treasury having unilateral power in investment and fund allocation, is probably a bad idea. Likewise, oversight given to one branch of the government is also unlikely to succeed. What's needed is a comprehensive overhaul of how our government deals with the financial markets. This is the lesson we must learn from the wishy-washy 90s. We can either commit to regulation done correctly, with multiple tiers of oversight, or we can stop market-prop-ups altogether and stop the spread of risk-resistant investors. Given the repeated failing of those who run the corporations, the former option is probably for the best.

 Of course, this crisis would probably be much more palatable if we hadn't neutered the Glass-Steagall Act in 1999. Thanks Phil Gramm, Bill Clinton and the 99' Congress!