The Bailout Explained

September 29, 2008

The $700 billion dollar “bailout” is necessary to avoid imminent economic catastrophe by maintaining the illusion that unregulated credit expansion is sustainable.  Failure to implement a bailout would further reveal the depth of the vulnerability of our economic and financial systems.

The bailout is an economic and political patch.  The likelihood of additional domestic and foreign government intervention is high.  In other words, $700 billion may be a relatively small amount of money when viewed in larger process of the collapse of the United States’ financial system.

One of the loudest counter-proposals to the bailout involves giving money to U.S. taxpayers/mortgage holders instead of to Wall Street.  Unfortunately that solution does not respond to the problem, which is a core endangerment to entity-to-entity lending, especially among banks (i.e. commercial paper markets).  Further curtailment in lending markets over the next couple of weeks would likely lead to even more extreme market reactions including additional domestic and international stock market crashes, similar to what was experienced on Black Tuesday in October 1987.  The bailout is intended to prevent a complete seizure, albeit temporary, of entity-to-entity lending and related economic consequences.

It is essentially a spiritual or conceptual question.  How does one handle inevitable demise, diminution and general degradation?  It is painful no matter what small measures are taken to delay it.  Cycles are cyclical.  Magnitude and time are variable.  Sit back and enjoy the ride.

—the muti-dimensional accountant

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