Whose Boat Are We Bailing, or Does a Bailout Really Work?

19 Oct Whose Boat Are We Bailing, or Does a Bailout Really Work?

What the Bailout Bill Means to Us.

Written by Matt Wegner
Founder and Lead Counselor, Matt Wegner Coaching, www.financialexcellence.net

You can’t turn on the news without hearing about the big bailout bill, or as some are choosing to call it, the economic rescue bill. BRaft Under Waterut what does the bailout bill mean to you? Simply said, not much. You may see some tax relief come this spring, but outside of that there isn’t much that will directly impact you. The basic plan is this: the government (with our money) is buying up tons of bad mortgages and other debt from cash-strapped institutions. The idea is for this to free up cash for the banks to loan more money, thereby stimulating the economy. The problem with this theory is that borrowing too much is what got us in this mess in the first place. Our lawmakers, who can’t figure out how to balance a budget, think that the way to fix bad debt is to encourage people to get more debt. What kind of logic is that?

It gets worse. Since we are buying bad debts, there is no good way of assessing the true value of these debts. If they guess right, these debts appreciate, get paid off and the government (theoretically us) makes money. If they guess wrong, we lose money. So the government is speculating in order to allow the banks to loan more money, hoping we will go out and spend more money. While the bill is designed more to curb the decline in the economy than it is to stimulate growth, it will still take some time for any of the provisions to actually have an impact on the economy.

So, how should all this change your financial strategy? The approach remains the same, whether you’re in an economic downturn or things are booming. My wife and I haven’t made one change to our financial plan. The beauty of having a good plan is it works in any economic situation, and it’s easy to stick to.

So what’s your plan? Will you wait for Congress to pull you out of a hole by digging deeper, or will you take control of your situation and climb out? It’s your choice.

(Read last March’s tips to Recession-Proof your Finances).

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