Why This Layman Opposes the Bailout

I'm no economist, but the proposed bailout of Wall Street sounds like a bad idea. Maybe that's why it was defeated in the House of Representatives today. Basic psychology dictates that if you want to change people's behavior, you must punish bad behavior and reward good behavior. The bailout would do the opposite. It would reward bankers, investment bankers, mortgage lenders, and those on Wall Street, many of whom lobbied successfully for looser lending laws with no regulatory oversight and then took advantage of those laws to make risky loans when they knew better (pocketing billions of dollars along the way) with a giant taxpayer dollar party.

I don't get why these malfeasors should be rewarded. Apparently, they used creative financing products to lend money to home buyers who couldn't really afford the loans, and those home buyers have defaulted on their mortgages, sticking the lenders with bad debt. If we bail those lenders out, what's to stop them from going out and driving us into the ditch all over again? We're told that the bailout is about perception, that, somehow, giving the bankers all this money will "calm the credit markets." Those who favor the bailout say that, if banks are too afraid to lend each other money, more banks will fail, businesses will not be able to get loans, the whole economy will be brought to a standstill, and we'll have a recession or even a depression.

First of all, most Americans think that we're in a recession already. Second, we'll have a recession (or a deeper one) next year no matter what. Third, so what if more banks fail? Depositors' money is insured by the federal government via the Federal Deposit Insurance Corporation. That safeguard was put in place during the Great Depression specifically to avoid another one. If the banks ran their business poorly, let them fail. If you start a business and made bad decisions, would the government bail you out or would it let you fail? Isn't that capitalism?

Moreover, the bailout is the ultimate "top-down" economic stimulus, rewarding Wall Street fat cats who have made millions of dollars. We've already had a nearly trillion dollar top-down stimulus for military contractors, oil companies, and other friends of the Bush Administration. It's called the Iraq War. Now it's time to avoid a depression by a bottom-up stimulus. How about giving money directly to the homeowners who are about to default on their mortgages, so they can negotiate with their lenders to pay the mortgages? Wouldn't that avert the financial crisis all by itself? How about putting the money into our infrastructure, building roads and bridges that are in serious disrepair? That will have the secondary effect of giving people jobs and money that they can spend to help the economy. How about a government program to retrofit homes and buildings to make them more energy efficient? This will create more jobs, help out the building contractors, stimulate the companies involved in efficient energy, and make us less dependent on oil.

There are many ways to spend hundreds of billions of taxpayer dollars to help our economy. I'm sure I'm being overly simplistic, but my gut tells me that giving the bailout to the fat cats who got us into this very mess is the most unfair and least effective way to do it.