Residents unsure how federal bailout will work

By Sharna Johnson: Freedom New Mexico

The financial markets reflected a general feeling of unease and skepticism felt by many over the government’s proposed $700 billion bailout plan to buy bank’s mortgage debts.

Worries that the rescue package would cost too much, drive up inflation, swell the already-bloated deficit and hurt the ailing economy also led global investors to flee the U.S. dollar.

“Absolutely I’m skeptical,” David Hemley, a finance professor at Eastern New Mexico University said.

“I literally don’t know and nobody else seems to know either. There’s just a lack of details. Who’s ultimately going to pay for this?”

Hemley said news reports on the proposal have been sketchy with minimal details. He said he believes it is critical to iron out issues such as who will be responsible for oversight after the bailouts to keep things stable.

“This is not to say something shouldn’t be done, but you’re going to have to have more details. … I just don’t think you can just print up ($700 billion) and these firms can just wipe the debts off their books,” he said.

And many average Americans are unsure. Retiree Robert Maes said, “I’m not too sure yet what’s going on. Right now, I’m not too sure of anything.

“I’ve been thinking about my mutual funds. But I don’t know. I’m all mixed up.”

That lack of certainty was echoed on Wall Street.

While investors last week were pleased that federal authorities were constructing a plan to relieve the nation’s banks of their toxic assets, many weren’t waiting for the details to emerge Monday before seeking safety.

Investors are not sure how successful the plan might be in unfreezing credit markets, which many businesses depend on to fund day-to-day operations.

Many market observers are hoping for details of the plan to emerge by midweek and delays could weigh further on investor sentiment.

Terry Christesson, finance and economics instructor at Clovis Community College, said it’s a strong move with cause for concern.

“What strikes me as strange is we’re starting to bail out the financial markets and we’re not in a recession yet. … It’s a very, very strong step toward socialism,” he said.

Christesson said he understands the idea is to build faith and trust in the financial markets, which he said is their lifeblood, but worries that it might be too much too soon.

“The intention (of the bailouts) is to try to preserve some degree of integrity in the financial markets and prevent panic. Our financial system is very flimsy, it’s based on faith. … But we need to let them do some falling first, we need to at least be in a recession first,” he said.

Clovis resident Eadie Mealski said she is glad to hear the government is stepping in to boost confidence in the markets.

“I’m all for them (trying) to take care of these places that have all gone bankrupt. If people start taking their money out, that’s going to cause a problem with our banks,” she said.

Keeping up confidence in the markets is vital, Christesson said.

During The Depression era, people pulled their money out of banks and buried it in the yard or hid it under the mattress, he said. “Keeping people circulating money is really a critical thing,” he said.

But as to what the bailouts will mean down the road to taxpayers, “That’s the $10,000 question,” he said.

Whatever happens, Christesson said he believes the recent upheaval will and should lead to a change in thinking, more conservative spending and a reduction of debt both on a national and individual scale.

“We really need to produce something as an economy. Sadly in the last 10 years we’ve produced more debt than anything else,” he said.

“The same old things that we have at the individual level we have at the economy level. We’re getting a good wake-up call. We’ll make or break our own economy by our actions.”