Implications of the bailout !!!

There is a lot of controversy surrounding the bailout and its implications and I am very sure the common man is not bothered beyond knowing whether things will be good for him or not. This post is for that common man who should have a certain assumptions cleared before he gets to understand the bailout and starts smiling.

First a little history. The Wall Street is witnessing turmoil many thanks to the American way of life - "Borrow and spend". All the pillars that gave to the world too many innovative financial products are all set to bite the dust if they haven't yet. The bailout is to rescue the ones that haven't yet got stung by the fangs of the venomous snake that was fed collectively by all these pillars.

Getting back to the Layman, all he would know is that the bailout sanction will do good for him, improve the financial markets which would translate to easy availability of loans at slightly higher rates of interest. Mistake !!!! Why then would the whole American Congress vote against it in the first place? Elementary logic, we cant buy out the shit we are in. For the bailout to possibly show us a way out, the housing market should become stable which looks like a far fetched reality with the number of people defaulting on their houses.

By stability I mean the Real Estate prices should not drop as they are doing right now, else the banks will never get to know when they can get easy on lending. The exclusivity that they now show to people with sterling creditworthiness needs to be done away with. Its a simple vicious circle -- stricter loans means lesser buying,which means lesser selling which means more defaults because of falling prices (Demand far less than Supply )which means graver situations for the ages to come.

The point here is that bailing out the so called "distressed assets" which are in the form of Mortgage backed securities may not help as much in improving the financial conditions all over the world.

The post is not intended at criticizing the bailout as this is one of the only pragmatic solutions that could be offered. Its just to clear a notion that blinds the common man and reads "Happy days are here again" and to make the policy makers realize the fact that one should pay for one's faults and the payment mode will not be through "Cash or Credit Card". Unfortunately it's not as simple as that.

All said and done the bailout offers hope to people who are really gloomed by the fallout of the markets worldwide. All I could end the post is with this "Hope is a good thing and no good thing ever dies". Amen!!!!