2008 Woodie Awards
Exploring Economics: Part 2
State of America's economy still in danger
By: Sun Cha, Editor-in-chief
Issue date: 10/3/08 Section: News
On Monday, the infamous $700 billion bailout plan was rejected by the House of Representatives in a 228-205 decision. But, Wednesday evening, the bailout bill was resurrected when the Senate passed the bill in a 74-25 vote.
The proposed bailout plan is the biggest economic bailout since the Great Depression.
"I think it could easily cause a severe recession if businesses can't borrow the money they need to operate and expand," professor of economics Dr. Michael Butler said in an interview early Wednesday. "For the economy to grow, we need to build new factories. We need to buy new equipment. A lot of that is done on credit. And without that, our growth will cease…"
The result of the House vote caused a commotion on Wall Street as the Dow suffered the greatest one-day loss ever.
Investors on Wall Street were frantic after hearing the news of the House's decision. The bailout is viewed by many as a preventative measure of a possible market crash.
According to "The Wall Street Journal," the Dow fell 777.68 points Monday, but the seven percent decline is "far from a record in percentage terms."
Business major Brian Zitrick said he believes the passing of the bill is necessary for the economy.
"If it is passed the Stock Market will probably become less volatile and financials will start to stabilize," Zitrick said. "Also, we will probably see a great rise in the stock market for a few days shortly after the bill passes as people gain confidence in the US market. However if the bill does not pass, I believe the market will roll over and will take quite some time to recover."
Many are pointing fingers to blame Wall Street for the current state of the economy, but Butler said he thinks there are more to blame.
"I would say there are three parties to blame," he said. "The bank regulators, the politicians that pass laws and rules and regulations, the people that borrowed money when they shouldn't have. And then, financial institutions, too. All of the parties are guilty."
A quick recap:
The bailout plan will help financial institutions that suffered extensive losses after the burst of the housing bubble. Over-lending without significant return on mortgage loans led to the rapid decline and demise of several large financial institutions.
"A lot of people took out these loans thinking well, 'I don't have to put money down,'" Butler said. "'And if I can't make my payments I haven't really lost anything because it'll take them six months to get me out of the house.'"
Among the institution casualties: Washington Mutual, Lehman Brothers, Fannie Mae, Freddie Mac and AIG.
Some of these companies, including Fannie Mae and Freddie Mac, have been taken over by the government. Other large investment firms, such as WaMu and Merrill Lynch, have been bought out by other big companies.
The bailout plan would allow the government to buy the mortgage-backed securities from the failed institutions, which would keep money flowing through the dire organizations.
Supporters of the proposed bill argue that the Stock Market could crash should the bill not pass. It is thought the US economy could not survive without consumers being able to borrow on credit. With the current state of the economy, many financial institutions are hesitant or unable to extend loans to those who need them.
Though the situation might not affect current students, if left unresolved, future would-be college students might face difficulty securing loans; thus, limiting their choices of colleges.
"The liquidity, the ability of our institutions to make loans has kind of dried up in the last month or so," Butler said. "Our economy needs that liquidity. Businesses…potential homeowners need to be able to borrow money. We do need this credit."
The nation anxiously awaited life support
Though shot down in the House earlier in the week, on Wednesday, the bill was taken to the Senate, with new provisions such as raising the limits on banks' federal insurance to $250,000 from $100,000.
"It would only help people if their bank fails and if they have more than $100,000 in an account," Butler said. "Realistically, most people don't have $100,000 or more in an account and realistically, most banks are not going to fail. So, to me, it's kind of a political thing more so than an economic thing."
The bill also provisions regarding disaster relief and has tax breaks.
The bill, originally a mere three pages, swelled to 451 pages Wednesday afternoon as it headed to its uncertain fate in the hands of the Senate.
"The bill's focus, I think, is getting credit back into the system," Butler said. "So we can continue on. Our economy desperately needs that."
What can college students do to prepare?
"There is not an easy answer as to what you can do. There is not much you can do to protect yourself as a student except try to get your degree in a field for which there is a demand. Beyond that, I don't really know what you can do, what any of us can do.
I think anybody needs to be prudent in their financial decision-making. You need to sit down and answer the questions: 'Can I afford this? Do I have a down payment that's sufficient for this? If I get laid off of work, what's the likelihood that I can find a job fast enough?'"
Should schools and educational institutions implement more economic courses in curriculum for everyone?
"Yes I do. I think in living out one's life, economics is every bit as important as having a course in music, literature or basic mathematics. We live with it every day. We make economic decisions, and most of us, are not trained. To make good decisions in later life, it helps immensely to have a basic understanding of the economy, and most students get out without ever getting that understanding."
The proposed bailout plan is the biggest economic bailout since the Great Depression.
"I think it could easily cause a severe recession if businesses can't borrow the money they need to operate and expand," professor of economics Dr. Michael Butler said in an interview early Wednesday. "For the economy to grow, we need to build new factories. We need to buy new equipment. A lot of that is done on credit. And without that, our growth will cease…"
The result of the House vote caused a commotion on Wall Street as the Dow suffered the greatest one-day loss ever.
Investors on Wall Street were frantic after hearing the news of the House's decision. The bailout is viewed by many as a preventative measure of a possible market crash.
According to "The Wall Street Journal," the Dow fell 777.68 points Monday, but the seven percent decline is "far from a record in percentage terms."
Business major Brian Zitrick said he believes the passing of the bill is necessary for the economy.
"If it is passed the Stock Market will probably become less volatile and financials will start to stabilize," Zitrick said. "Also, we will probably see a great rise in the stock market for a few days shortly after the bill passes as people gain confidence in the US market. However if the bill does not pass, I believe the market will roll over and will take quite some time to recover."
Many are pointing fingers to blame Wall Street for the current state of the economy, but Butler said he thinks there are more to blame.
"I would say there are three parties to blame," he said. "The bank regulators, the politicians that pass laws and rules and regulations, the people that borrowed money when they shouldn't have. And then, financial institutions, too. All of the parties are guilty."
A quick recap:
The bailout plan will help financial institutions that suffered extensive losses after the burst of the housing bubble. Over-lending without significant return on mortgage loans led to the rapid decline and demise of several large financial institutions.
"A lot of people took out these loans thinking well, 'I don't have to put money down,'" Butler said. "'And if I can't make my payments I haven't really lost anything because it'll take them six months to get me out of the house.'"
Among the institution casualties: Washington Mutual, Lehman Brothers, Fannie Mae, Freddie Mac and AIG.
Some of these companies, including Fannie Mae and Freddie Mac, have been taken over by the government. Other large investment firms, such as WaMu and Merrill Lynch, have been bought out by other big companies.
The bailout plan would allow the government to buy the mortgage-backed securities from the failed institutions, which would keep money flowing through the dire organizations.
Supporters of the proposed bill argue that the Stock Market could crash should the bill not pass. It is thought the US economy could not survive without consumers being able to borrow on credit. With the current state of the economy, many financial institutions are hesitant or unable to extend loans to those who need them.
Though the situation might not affect current students, if left unresolved, future would-be college students might face difficulty securing loans; thus, limiting their choices of colleges.
"The liquidity, the ability of our institutions to make loans has kind of dried up in the last month or so," Butler said. "Our economy needs that liquidity. Businesses…potential homeowners need to be able to borrow money. We do need this credit."
The nation anxiously awaited life support
Though shot down in the House earlier in the week, on Wednesday, the bill was taken to the Senate, with new provisions such as raising the limits on banks' federal insurance to $250,000 from $100,000.
"It would only help people if their bank fails and if they have more than $100,000 in an account," Butler said. "Realistically, most people don't have $100,000 or more in an account and realistically, most banks are not going to fail. So, to me, it's kind of a political thing more so than an economic thing."
The bill also provisions regarding disaster relief and has tax breaks.
The bill, originally a mere three pages, swelled to 451 pages Wednesday afternoon as it headed to its uncertain fate in the hands of the Senate.
"The bill's focus, I think, is getting credit back into the system," Butler said. "So we can continue on. Our economy desperately needs that."
Comments from Dr. Michael Butler
What can college students do to prepare?
"There is not an easy answer as to what you can do. There is not much you can do to protect yourself as a student except try to get your degree in a field for which there is a demand. Beyond that, I don't really know what you can do, what any of us can do.
I think anybody needs to be prudent in their financial decision-making. You need to sit down and answer the questions: 'Can I afford this? Do I have a down payment that's sufficient for this? If I get laid off of work, what's the likelihood that I can find a job fast enough?'"
Should schools and educational institutions implement more economic courses in curriculum for everyone?
"Yes I do. I think in living out one's life, economics is every bit as important as having a course in music, literature or basic mathematics. We live with it every day. We make economic decisions, and most of us, are not trained. To make good decisions in later life, it helps immensely to have a basic understanding of the economy, and most students get out without ever getting that understanding."
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