US Economy and the Bailout Plan: Down, but Not Out!

Yesterday the Dow Jones Industrial Average closed the day down 777 points! Needless to say that’s going to get your attention when you flip on your local news and the anchors are attributing it to a House funding bill, vital in avoiding a financial meltdown, that failed.

Especially when you had no inclination there was a financial crisis to begin with. Case in point: last night I met up with a college roommate who was back in the States from work he does in Italy, the Czech Republic and the Ukraine. We had dinner with his parents and some of his other friends. I didn’t get to talk about the economy with my old roommate, but his dad (knowing I follow the markets on a daily basis) asked me,

“What the heck is going on?”

This guy I was talking to had no idea that the House had spent the last two weeks squabbling over a last ditch effort to “rescue” the economy. Now, don’t get me wrong, after I began getting into the details I learned he was well aware of the root of the financial trouble.

“A bunch of money was lent out to people who couldn’t pay it back and now it’s all coming home to roost,” he said.

Exactly. He knows how economics generally works. And he understands the serious disconnect in lending to subprime (or worse) borrowers and then making leveraged bets on the chances of them being able to consistently and responsibly pay their loans. The thing is, he’s not one that’s going to be severely impacted by this financial crisis that we’re told will threaten EVERYONE. Sure, the fallout might be noticeable when a wellliked restaurant of his closes down or when his favorite wine boutique goes under because consumers aren’t going out to eat much and are finding cheaper substitutes for their favorite Cabernet at the grocery store.

I kind of laughed at first because it seems to me that the public is being absolutely inundated with this bailout package. My roommate’s father lives and works in the US, but for his own good probably does not turn the TV on all that much. He then exclaimed to me …

“I caught a second of the news the other night after work and they were talking about some financial crisis, and I’m thinking to myself ‘What financial crisis? I didn’t know we were in a financial crisis.’”

Interesting.