The Bailout: What It Means for Consumers

President Bush had a tough job to do in his speech last night. He had to convince the nation—including people who are on the verge of foreclosure, struggling to pay student loan debts, and falling behind on their credit cards—that it was financial giants, and not them, who deserve the $700 billion bailout.

The proposal has been met with fierce opposition this week as consumers ask themselves why they should squeeze their own budgets even further to help hand over $2,300 per taxpayer to companies run by people who earn more than that per hour.

In order to make his case, Bush argued that the money wasn't really going to the finance industry. It was, in fact, going to you and me. He said: "This rescue effort is not aimed at preserving any individual company or industry. It is aimed at preserving America's overall economy. It will help American consumers and businesses get credit to meet their daily needs and create jobs."

He tried to flesh out the logistics of that argument in terms that don't require an advanced degree in economics. Because financial institutions are holding loans that may not get paid back, they are hesitant to lend any more money, and when they do, it's at a high price to borrowers. That means ordinary people are struggling to afford loans for cars, school, and homes. To get those institutions lending again, they need to be relieved of those distressed loans.

Bush painted a pretty dire scenario of what could happen if Congress doesn't approve the money. In fact, it sounded a lot like the 1930s: "America could slip into a financial panic... More banks could fail, including some in your community. The stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet... If you own a business or a farm, you would find it harder and more expensive to get credit. More businesses would close their doors and millions of Americans could lose their jobs... Ultimately, our country could experience a long and painful recession."

Here's my reaction: Nobody wants an economic slowdown. If the credit markets freeze up altogether, everybody loses. But maybe more expensive credit, at least temporarily, isn't such a bad thing. Bush himself blamed cheap credit on fueling the current crisis in the first place; because people could afford to borrow massive amounts of money, they did. If banks give credit a little more warily, maybe that will encourage more responsible spending in the first place.

What do you think? Did Bush's alarming predictions convince you to support his plan? Or do you have a better idea for how that $700 billion should be spent?