Dollar Tamer Helping you tame your money

The Senate passed the latest revision of the bailout bill 74-25.  It is now heading to the house where its fate is unknown.   A Yahoo article points out that the length of the bill has swelled from 3 pages to 451 pages, and it still could grow more in the House.  This is all due to adding provisions to the bill to give representatives an out to vote for the extremely unpopular bill.  I suppose it is important in an election year to be able to say “I was voting for tax breaks” instead of getting hammered for voting for a $700 billion bank rescue.

Some of the additions to the original bill are:

• Expanding the FDIC Coverage from $100,000 to $250,000 (I covered FDIC in a recent post).
• A one-year patch to the Alternative Minimum Tax (AMT).
• $100 billion in tax breaks for business and middle-class.
• $8 billion in disaster relief for Texas, Louisiana and the Midwest for Hurricane Ike.

So what does all this mean for the regular citizen?  What we are seeing is the government putting itself another $700 billion in debt by buying subprime mortgages.  A subprime loan is given to someone that is expected to have a very high rate of default (i.e. low income, high debts, history of default, etc).  To compensate for the risk, the loan is given a high interest rate which in turn makes it even more difficult for the person with the loan to pay it off.  This is a very risky investment for the lender.  What we see now is the result of the risk not paying off.  Now the Government wants to take over these poor investments using our tax dollars.

I can appreciate the fact that massive lending failures will cause all sorts of economic calamity, but what we’re looking at is making the public pay for the bad investments that the banks made.  There are all sorts of political fingerpointing going on (I do not want this to turn into a political blog), but the fact is that the end result is a bigger Government that will need more funding.  The money is going to have to come from somewhere to cover this.  Can you say more taxes?  The last thing this economy needs is additional taxation!

Dave Ramsey is talking about an alternative plan, that I must say looks very appealing.  The details are available here.  It is another option that should be considered (though I fear now it’s too late).

To put it into perspective, here’s a comic that Brokeass-Student found that’s a pretty good sum-up of the situation.

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