Taxpayers may spend $1 trillion in bailout

Wow! This plan, if enacted, will probably be the largest government intervention in the American economy since the Great Depression. It will certainly be the most expensive in our history. Why is the government considering such action? What is this crisis all about?

The plan proposed by President Bush and backed by many in Congress will give the Treasury Department the authority to spend something in the neighborhood of $700 billion dollars to buy up crappy investments and loans from Wall Street companies that are on the brink of collapse. Basically, these investment companies screwed up, and now the government (and the taxpayers!) are being asked to bail them out. The bad investments made by private individuals and corporations will then be owned by the U.S. government. (That is all of us!)

Why would we do such a thing?

Well, the warnings from D.C. are that the effects of all these companies failing would greatly damage the entire economy, especially the ability to get credit and loans. This would lead to a stronger recession, less jobs, and hurt the nation as a whole. Basically, they say they are acting to promote the common welfare to prevent an economic collapse.

The government has intervened in the economy before, especially during the Great Depression and during the Savings and Loan Crisis of the 1980's. (Remember FDR's bank holiday, and the creation of the National Recovery Agency?)

The problem is that this will be very expensive and no one is really sure how it will work out. It might save us from economic disaster or it could wind up fueling inflation and creating an even larger debt so that the things the Presidential candidates are promising to do might not happen. There will be a lot less money for the government to spend, if this plan is approved by Congress.

And there are fundamental Constitutional questions as well. Should Congress give this much power to the Treasury Department (Executive Branch)? Is this something the Framers of our Constitution would have envisioned the federal government doing? Both left-wing and right-wing commentators have criticized this plan over some of these questions.

Here is a video and some articles you may find helpful:

Taxpayers may spend $1 trillion in bailout - Seattle Times Newspaper

Depressingly familiar: Uncle Sam to the rescue
The stock market plummets, investors pull out money and loans dry up, triggering global financial turmoil. Enter the government, buying...

Policymakers: Congress Must Move Quickly to Avert Damage
Lawmakers Remain Deeply Skeptical of Financial Rescue Plan

Criticism and controversy:
Treasury chief Paulson on verge of historic new powers
The administration's bailout plan would make him temporary overseer of the US financial system.

Cash for Trash - by Paul Krugman
Some skeptics are calling Henry Paulson’s $700 billion rescue plan for the U.S. financial system “cash for trash.” Everyone agrees that something major must be done. But Mr. Paulson is demanding extraordinary power for himself — and for his successor — to deploy taxpayers’ money on behalf of a plan that, as far as I can see, doesn’t make sense.

Senator Chris Dodd: “After reading this proposal, I can only conclude that it is not only our economy that is at risk, Mr. Secretary, but our Constitution, as well.”

Conservatives: 'Take a breath' before passing bailout - CNN

Bailout could boost inflation, sink dollar
Oil and gold surged Monday as investors worried that huge new debts will harm US Treasury's credit standing.