Business School Student Gives His Take on Government Bailouts

This piece was written by one of my students at Baruch College (CUNY) for my Writing for Public Relations course. I encouraged him to submit it to the college newspaper, which he did.  He has made mother so very proud.

by Fabian Ohore – The Ticker

The United States’ economic future may look bleak, but Americans are resilient and we are bound to come out of this unscathed for the most part. Historically, this isn’t the worst economic situation to rear its ugly head, but it is still too early to say how much further it may spiral out of control. The solution offered by the Federal government, a $700 billion bailout, could do more harm than good.   

When Henry Paulson offered to buy up Wall Street’s assets, something seemed off with the proposal. Paulson and his cohorts knew full well that no $700 billion bailout/ would fix the nation’s troubled economy. If you’re choking on a chicken bone, Pepto Bismol won’t help you. With the Dow below 10,000 points for the first time in four years, many will be questioning the worthiness of the bailout.

Paulson, a former Goldman Sachs executive, has an interest staked in this bailout. The perfect analogy that fits Paulson is the man who leaves his house, makes his bed and wants to go back home to see his bed the same way he left it. Paulson left Wall Street and Goldman worth $700 million. Paulson is definitely trying to help his buddies on Wall Street with taxpayer money instead of letting them fall.

The Financial Times claimed he needed to set up a board to be run by the likes of Paul Volcker and the situation would improve. Instead of creating new boards, which would lead to more blame shifting, the U.S. government should have responded with a restructuring of the Securities Exchange Commission and how it evaluates and responds to what is considered risky behavior in the financial world.

Paulson’s plan, in simplest words, is buying up the failing assets without determining their actual worth. In many cases, the Federal government may be severely overpaying for assets that will fail to reach their value. Paulson is making a huge gamble with this plan. Companies have too much debt and not enough money to finance their day-to-day operations. There will be too much money chasing too few assets, and with the U.S. facing inflationary pressure already, this will lead to skyrocketing prices. 

What should have been done is allow the failing companies to be taken over by their creditors just like the airline industry. Let the risk-takers pay for their mistakes. The only downside to that is most shareholders would be wiped out, bankruptcy would have shed the non-profitable parts of many on Wall Street and only the most profitable would have survived. 

Most on Wall Street are scared of this because it would put the true value of their companies on the market, so they need a government gullible enough to pay above market value for their bad debts. Don’t be scared by those who say if Wall Street crashes then Main Street will do the same. If Wall Street did crash, the $700 billion would have been better used to create jobs and help minimize the “domino effect” that Wall Street has on Main Street.

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