Why You Need the Bailout

2008-09-29
By Eric Easter

At this writing, Congress had not struck a deal on the proposed 700 billion bailout. By the time you read this, maybe there will be a deal, maybe there won’t.

Either way, don’t be confused into thinking the country doesn’t need this. More importantly, don’t be fooled into thinking that you don’t need this.

Try as they might, neither John McCain nor Barack Obama , and certainly not the person most responsible for this – Gorge H.W. Bush- have done a very good job of breaking this issue down to a level where it makes sense to the Average Joe.

Is this a bailout of Wall Street? Yes it is. But it’s also a bailout of a whole lot of things that touch you much more personally.
 
First, not to insult your intelligence, but let’s explain how money works in our system. Remember the movie “It’s A Wonderful Life” when Jimmy Stewart tries to go on his honeymoon but there’s a run on the Savings & Loan and everybody wants his cash?

Stewart, trying to get people to hold off, attempts to explain: “ Your money’s not here in a safe. Your money’s in Joe’s house, and your money’s in Mary’s house…”

That how the world of money works. Wall Street is America’s Savings and Loan. They don’t have cash in a vault, it’s all flowing into your house and my house and that building going up down the street and the new Best Buy about to open, and the place you need to worry about most – your place of employment.

Unless you work at the local liquor store , dry cleaner, chicken joint or other small business where cash is king, you are working for an employer who borrows to pay payroll. 

The company you work for may make millions in sales per year, but that doesn’t mean the money’s sitting in an ATM somewhere. It’s in T-bills and CDs and Money Market funds and health care premiums and taxes and the light bill and the trash removal company and the list goes on.

You may have made a million dollar deal last week and got your commission check, but that doesn’t mean your company ever got the money. The dirty little secret in business is that most businesses pay their bills they way you paid the phone company in college, meaning they pay whenever they feel like it.

But whenever you feel like it doesn’t help a business pay its people every two weeks. So most companies borrow against future receipts to cover basic operating costs. But what  if those business can’t get access to credit?

Here’s the most basic way to think about this crisis:

No Wall Street bailout, no investor confidence.
No confidence, no cash flow.
No cash flow, no credit.
No credit, no business loans.
No business loans, no payroll.
No payroll, no employees.
No employees, no company.
No company, no job.
No job, no money.
No money, no private school.
No job, no bill paying.
No bill paying, bad credit.
Bad credit, no loans.
No loans, no house.
No house, no equity.
No equity, no retirement.
No retirement. Screwed.

Does this sound like your life? If not, consider yourself lucky, because a lot of Americans are halfway down this list as we speak.

Would all of that happen overnight if not for a bailout, as some suggest? No.

Would it be like the Great Depression? No, not really.  People would have money but they’d hold onto it for dear life.

But over the course of many months or a year or so, thousands of companies would either go under completely or be in the position of putting their valuable assets up for sale to accumulate cash reserves, damaging their personnel and asset infrastructures and leaving them open to investment wolves waiting at the door.  And if that happens, in the most ironic twist, the rich would become even richer than they’ll become under a bailout.

How’s that for economic justice?

Eric Easter is Chief of Digital Strategy for Johnson Publishing Company. He writes on media, tech and politics for ebonyjet.com.

Main photo: AP Photos