In the comedy of errors that we call “the bailout,” the House of Representatives thumbed their collective noses to the White House and to the party leadership of Congress. In a vote that was far from down party lines, the House voted 228 to 205 against the $700B Wall Street bailout package, with 95 Democrats joining 133 Republicans putting an end to over a weeks worth of effort in Washington, DC. Now Congress will wait three days before coming back together to try once again.

I believe that neither the country nor the government is ready for a large omnibus bailout program as the one currently proposed. Trying to provide credit to struggling companies, taking over “toxic” mortgages, adding restrictions to Wall Street companies, increasing the powers of the Secretary of the Treasure, and so on in one large bill is enough to scare 228 Representatives from attaching their name to it. Some fear losing a close election. Others face a conflict of ideology. Others still cannot do so in good faith. So let’s address one of the more pressing issues that is hampering the economy as a whole.

It might sound like I am repeating myself, but the $150B stimulus package that was provided to us earlier this year was a waste of taxpayers dollars. Yes, it gave us a few hundred dollars to spend and keep our GDP positive for the quarter, but it didn’t address the real issue. As I indicated, the money should have been spent on restructuring many of the harmful ARMs held by people who were struggling to make their payments. Now, we would need at least $200B to achieve a similar level of impact on the economy. By replacing someone’s ARM with a fixed rate loan, the person will know what his or her monthly payments are and would not be faced with ever increasing payments during the life of the loan. That would lead to a reduction in the number of foreclosures per month. By reducing the number of foreclosures, banks have fewer homes to sell for a loss.

These two points means that funds and investments made by financial institutions based upon these mortgages are more likely to retain their value, bringing some sort of reliability and stability to the money lenders. Additionally, with fewer homes being foreclosed upon, the housing market values will remain at a constant level since homes are not being sold below cost. It also means that the supply of available homes on the market decreases, leading to increased demand. Increased demand leads to higher home values, which means added equity. So, with more people retaining their homes, making their monthly payments, and being able to access equity as needed since the houses are retaining their value, the financial markets will be more stable, reducing the number of institutions requiring federal aid. End result – tax revenue which provides a return on investment by the government.

Yes, this is overly simplified, but it has a more practical application that spending billions on Wall Street without addressing one of the most important cause of the current financial crisis. Yes there will be the need for the Fed to inject some case into the system to keep available credit flowing, but put the money where it needs to go. Create a piece of legislation that focuses in on the ARMs directly without all this nonsense about CEO golden parachutes, funds being redirected to ACRON, and the rest of this nonsense. It is time for Congress to put on their business hats and invest the money wisely in a way where it will provide a return on investment. Do this, and a majority of the House and Senate will vote in favor of the bill.

Related articles:
Republican Ranting – “Analysis of the House Voting Down Yesterday’s Bailout Bill”
Ed Gruberman – “$1,200,000,000,000″
Tom Rants – “How broke is it?”
The Spitting Vessel – “Betting Billions on a Bailout Bullet”
The Fireside Post – “Pelosi Blew This Deal”
Open Congress – “Pelosi Speech on the Bailout”
MLoger – “The Bailout May Not Be Enough”
Matt-Speak – “Dear Congress, Please Take Note…”
A Disgruntled Republican – “Congress Should Pass the Palson Plan”
The BoBo Files – “Bailout Voted Down! What Comes Next?”
CNN – “Bailout plan rejected – supporters scramble” 
Worldly Economic Thoughts – “Why the U.S. needs a Bailout”

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