What the $700 Billion Proposal Means for You

After last week's unprecedented events in the financial markets, the U.S. government stepped in over the weekend to offer forth a $700 billion bailout package as a means of shoring up our financial markets.

While the notion of government intervention may not raise an eyebrow now -- not after JPMorgan Chase's (NYSE: JPM  ) dance with Bear Stearns, Fannie Mae (NYSE: FNM  ) , Freddie Mac (NYSE: FRE  ) , AIG (NYSE: AIG  ) , Lehman Brothers, and now Washington Mutual (NYSE: WM  ) -- $700 billion is a figure so large as to seem unbelievable. But superinvestors Warren Buffett and Bill Gross endorse the idea. So does the current president. So do both presidential candidates.

But what does it all mean? To help make sense of it all, and to help assess the impact on us Main Street investors, we present you with analysis, insight, and even a call to action from Motley Fool writers and analysts:

A call to action!

What this means for your portfolio:

$700 billion, but is it a bailout?

Can Buffett resuscitate Wall Street?

Prelude to a collapse:

Neither Brian Richards nor Anand Chokkavelu owns shares of any company mentioned. JPMorgan is a Motley Fool Income Investor selection. The Motley Fool has a disclosure policy.


Read/Post Comments (22) | Recommend This Article (16)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 26, 2008, at 10:12 AM, jsl4980 wrote:

    What about the point of view that a bailout actually means printing more money out of thin air? Which will lead to runaway inflation followed by a long and severe depression.

    We're talking about giving an unprecedented sum of money to the failures who caused this crisis. We are rewarding failure and creating moral hazard. Which will lead to identical bubbles and impending recessions in other sectors.

  • Report this Comment On September 26, 2008, at 1:16 PM, spongeworthyusa wrote:

    $700,000,000,000.00 doesn't seem unbelievable; it is unbelievable.

    The only more unbelievable thing is that politicians and Wall Street fat cats and their cheering sections (such as the MF) have the unmitigated gall to think the taxpayer, many of whom such as myself took no part in this orgy of greed, ought to cheerfully and quickly hand over the money. Now, that is REALLY unbelievable.

  • Report this Comment On September 26, 2008, at 1:29 PM, mcafee2000 wrote:

    After listening to all is said, I have a question I've heard no one ask. How much will the management of AIG and the other companies MAKE from this bailout? Since their pay is determined by how well the company is doing - how much will they take home? How many additional tax payer dollars will they shove into their pockets and waolk home with?

    After all isn't $140 Million dollars enough for running a failing company?

    Are we as a society paying individuals to run companies into the ground do their Golden Parachute can open, and they walk away with millions of dollars based on their greed and ambition.

    A thought did cross my mind. It would be justice if those individuals who caused these companies to fail to be legal bound to return ALL bonuses based on earnings during fiscal period of the fail company. The individuals can keep their salaries up the point of failer, but after that point they will be removed from position. It doesn't make sense to keep executives in office who couldn't keep the organization from failing in their position. If they can't do the job, it's time to find someone who can.

    Just a thought or two

  • Report this Comment On September 26, 2008, at 4:13 PM, kjston00 wrote:

    Can someone please tell me? If these companies are too big to fail, then why does the government allow them to get so big? Where is Teddy when you need him?

  • Report this Comment On September 26, 2008, at 4:54 PM, limeonaire wrote:

    Again, please note, readers: That $700 billion number was pulled out of thin air - a Treasury spokeswoman literally admitted that yesterday. If they can pull that number out of thin air, what else are they making up wholesale? If you demand anything of your elected representatives in this time of crisis, demand that they learn more about this than they did about legislation during our last big crisis in 2001. That's what will make the difference for our beleaguered markets.

  • Report this Comment On September 26, 2008, at 5:30 PM, jcat101 wrote:

    The problem has been stated as the reluctance of banks to lend to each other, hence a lack of liquidity.

    The Treasury should be able to lend directly, and collect the repayment with interest, thus creating liquidity. This is a proper business-like solution.

    Under no conditions should the Treasury purchase assets. The supposed cause of this problem is the inability to determine the actual value of these assets. The U.S. Taxpayer has no business buying "pigs-in-pokes".

  • Report this Comment On September 26, 2008, at 8:07 PM, ShadowLogistis wrote:

    I maybe wrong but I thought the American goverment was not allowed to own stock in a public company let a loan own a controlling interest. Seems like a very bad idea to start letting our goverment control public companies.I mean they have never done a good job at controling the goverment or even controling themselves. Just a thought.

  • Report this Comment On September 26, 2008, at 10:36 PM, Bullstothewall wrote:

    What the $700 Billion "Bail Out" means to you:

    Wall Street executives can comfortably retire after wrecking the economy,

    You pay HIGHER TAXES

    Congress will pass more "BAIL OUTS"

    Write Congress and tell them to vote NO CORPORATE WELFARE "BAIL OUTS!"

    http://www.congress.org/congressorg/directory/congdir.tt

  • Report this Comment On September 26, 2008, at 11:58 PM, daninreno wrote:

    If we are going to print $700,000,000,000 new dollars and give them to someone, why not use the money to pay off all the bad mortgages? Then there would be no "toxic mortgage-backed securities" and the banks could trust each other again, so money will be loaned and the credit dry-up will be over. (And people can stay in their homes.)

    Let's consider "bubble-up" instead of "trickle-down" for once. The problem with trickle-down is that the trickle stops in the pockets of greedy, rich capitalists who like to play games with others' money.

  • Report this Comment On September 27, 2008, at 2:59 AM, lynx106 wrote:

    We should also keep in mind the role of the rating agencies who maintained AAA ratings on the worthless bonds

  • Report this Comment On September 27, 2008, at 10:26 AM, 10sixteen wrote:

    Osama Bin Laden wanted to destroy the financial backbone of the U.S. on Sept 11, 2001 by bringing down the World Trade Center Towers. It seems our greed, corporate benevolence and corrupted governance has legitimized his objective and created a self fulfilling prophecy. We can no longer put lipstick on our financial pig...it is time we learn what it is like to suffer and rebuild out of the chaos. I don't like it any more than the next person but a "Bailout" just keeps an already weak, enabled, entitlement society even weaker. We're debt junkies and it's time for rehab...

  • Report this Comment On September 27, 2008, at 12:25 PM, LiamFisher wrote:

    So the Captain and crew of the ship and a lot of passengers were smoking in the "No-Smoking" engine room. Lo and behold, the ship caught fire. It began to sink. People were scared but the Captain and crew told them not to worry, things would be OK. Then a big Bear of a person drowned. The Crew said not to worry, it was really his fault anyway. Then another person from LA drowned. Then two of the really wealthy passengers who had Government connections drowned. These two passengers owned companies that employed a lot of the other passengers and loaned money to many, many more. All the while the ship was sinking lower and lower in the water. The crew gave some of the few life jackets to some of the other weathy passengers to save them. One wealthy old gentleman even gave up some of his lifesaving gear to a beautiful and popular lady.....but it was only after a contract was made for regular sexual favors after they we rescued. But still, everyone argued about what to do about this situation. All the while the ship burned and sank deeper.

    My question is this.... Is it really smart to argue about who's fault it was the boat caught fire or who is going to run the Fire Response Crew or what kind of hose to use to put the fire out and all the while the boat burns and sinks further and further into the water? Sure, a few will survive, the strongest will take what they need. But it's a big ocean..... and it's uncertain how long one could be adrift.

    Look, I don't like the idea of funding this bail out any better than I like seeing my taxes go to some welfare bum, some third world despot or some illegal immigrant. But at least with the bail out, I might actually see some return on my money. If the market crashes and my 401K goes belly up, so much for retirement. That's if I can even hold/find a job when company after company closes it doors. The equity in my home? What equity if there is no one able to afford it or, if they have their pick of nicer homes available at firesale foreclosure prices, why should they buy mine? My kids going to college? On what? Their good looks? Not to mention the people that are near the bottom of the economy that don't really have much to lose. What happens when there's no more money for them? The survival instict is a very strong instinct. The difference between man and animal is about 3 days without food. Do you really think desperate people will give a damn about your "civil rights" or property rights?

    Face it, we are all in this boat together. We can ACT NOW and put out the fire and bail the water....... or we can sink. The choice is ours.

  • Report this Comment On September 27, 2008, at 2:13 PM, 10sixteen wrote:

    Unfortunately, I believe our "Boat" was probably bought with a credit card and maintained by painting over the rust. We've disguised shrinking middle class income and lopsided wealth distribution in this country for a long time with 'smoke and mirror' market manipulation and risky credit. Personally, I'd like to "ACT NOW" by not trying to guess on the definition, quantity and value of the required action. Does the 'bailout' even qualify as a hypothesis under the circumstances? Let the free market and capitalism find the meaning, quantity and action. We won't go hungry. We have the ingenuity and alot of farmland in the midwest ready to come off government subsidy... we just don't want to ride our bikes to get there...Our kids will still go to college (it'll be alot cheaper) and the modern lie about retiring on our 401k came with a small print warning label many years ago. It's not about who's to blame...we already know the answer to this one...it's you, me and our next door neighbors. We took our eyes off the ball, bought a shiny new one cause we were too lazy to go over the fence to pick it up and we stood idly by while we paid the refs to place bets on our game. Letting the free market decide is a choice.

  • Report this Comment On September 27, 2008, at 3:09 PM, Danno107 wrote:

    I have a question. With increasing chances of inflation going sky-high as the government prints more money, would it be wise to put a substantial percentage of a portfolio into gold? Or into other precious metals? What about gold minig stocks vs. gold metal? I already have too much in real estate which is now worth less than what I owe WaMu ... I guess it's actually J.P. Morgan now.

  • Report this Comment On September 29, 2008, at 1:28 PM, JustMeAngie wrote:

    So when we get into a financial crisis we are learning that we will be "bailed out." To be real... what lesson is learned from that? Oh... we learn that we can continue to make bad decisions and the government will step in and bail us out. Hmmm.... That doesn't seem like a lesson that will help us.

  • Report this Comment On September 29, 2008, at 3:32 PM, lluluien wrote:

    Here is the roll call vote from the House for resolution 3997 - the "Bailout". Now you can find out whether or not you need to call your Representative to tell him he's being voted out if he votes in favor of this again when it comes up for the next try. I already called Ike Skelton to tell him I'm voting for his opponent in the next election:

    http://clerk.house.gov/evs/2008/roll674.xml

  • Report this Comment On September 29, 2008, at 3:35 PM, ferg6 wrote:

    YESSSS!! The house voted the bailout DOWN. Could it be that we, the citizens, were actually heard and listened to?

    The DOW plummeted. As an investor, it hurts. As one who is against bailing out corrupt institutions, I'm cheering.

    Now, those in the Congressional bubble will have to get to work and design something more palatable to us. Any plan designed by a guy who walked away from Goldman with $500 million will probably not be good for most of us.

    Rock on!

  • Report this Comment On September 29, 2008, at 6:57 PM, Maraith wrote:

    I want details, folks. DETAILS. If every American were given a million dollars by the government, it would be...what...$400million? We'd all pay off our mortgages (that could be a requirement), the banks would get the cash, and credit would rebound.

    So that's not enough? It must be $700 billion? What for? We're paying for ALL the bad debts these companies took on? Ever? What the heck is the money for? Exactly? Details, please.

  • Report this Comment On September 30, 2008, at 1:57 PM, Huizenga wrote:

    Where did the figure $700 (or sometimes reported as) $770,000,000 come from?

    How many homeowners are there in this Country?

    Can we guess about 1/2 of families own a home? Let's see, divide 300,000,000 by 2= 150,000,000. If we divide by 4.(4persons / family) equals 37,500,000 homes.

    How much to pay off our mortgages?

    Well, that doesn't seem fair, lets say the Government gave each homeowner $10,000 to "catch up" his mortgage or whatever.

    My math says it would cost the Government 375 Million Dollars- not 770 BILLION.

    Is this a plan? I for one would be very happy with $10,000 and committed to paying on my mortgage!!

  • Report this Comment On September 30, 2008, at 2:03 PM, Huizenga wrote:

    My calculator erred some zero's, but I,m still 1/2 of the Govt estimate!

  • Report this Comment On October 01, 2008, at 11:32 AM, MisterQQQ wrote:

    Now here is what Congress can do with the Bailout deal…

    Sounds like a plan to me. Wonderful idea. Let's get it going....

    I'm against the $700 billion bailout of Wall Street.

    Instead, I'm in favor of giving 700 billion to Wall Street in a 'We Deserve It Dividend'.

    To make the math simple, let's assume there are 200,000,000 bonafide U.S. Citizens 18+.

    Our population is about 301,000,000 +/- counting every man, woman and child. So 200,000,000 might be a fair stab at adults 18 and up..

    So divide 200 million adults 18+ into $85 billion that equals $425,000.

    My plan is to give $425,000 to every person 18+ as a We Deserve It Dividend.

    Of course, it would NOT be tax free. So let's assume a tax rate of 30%.

    Every individual 18+ has to pay $127,500 in taxes. That sends $25,500,000,000 right back to Uncle Sam.

    But it means that every adult 18+ has $297,500 in their pocket.

    A husband and wife has $595,000.

    What would you do with $297,500 to $595,000 in your family?

    Pay off your mortgage - housing crisis solved.

    Repay college loans - what a great boost to new grads Put away money for college - it'll be there to save in a bank or create money to loan to entrepreneurs.

    Buy a new car - create jobs

    Invest in the market - capital drives growth Pay for your parent's medical insurance - health care improves Enable Deadbeat Dads to come clean - or else

    Remember this is for every adult U S Citizen 18+ including the folks who lost their jobs at Lehman Brothers and every other company that is cutting back. And of course, for those serving in our Armed Forces world wide.

    If we're going to re-distribute wealth let's really do it...instead of trickling out a puny $1000 ('vote buy') economic incentive that is being proposed by one of our candidates for President or the $1200 provided by the current President.

    If we're going to do an $85 billion bailout, let's bail out every adult US Citizen 18+!

    As for AIG - liquidate it. Sell off its parts. Let American General go back to being American General. Sell off the real estate. Let the private sector bargain hunters cut it up and clean it up.

    Here's my rationale. We deserve it and AIG doesn't. If they did, they wouldn't be in the mess they are in now!

    Sure it's a crazy idea that can 'never work.'

    But can you imagine the Coast-To-Coast Block Party! How do you spell Economic Boom?

    I trust my fellow adult Americans to know how to use the $85 Billion We Deserve It Dividend more than I do the geniuses at AIG or in Washington DC .

    And remember, The Family plan only really costs $59.5 Billion because $25.5 Billion is returned instantly in taxes to Uncle Sam.

    Ahhh...I feel so much better getting that off my chest.

  • Report this Comment On October 06, 2008, at 12:10 PM, FloridaGirl1 wrote:

    Now that congress has approved this fiasco of a bill, when are heads going to roll for causing the problem. Paulson should be the first to go, followed by all the CEO's both present or past who were responsible for it. I contacted my representatives to vote against the plan, am still vehemently opposed to it. I am involved with the stock market and have been hit, just as all the others, but I fear we are going to wind up in worse shape than if we had just let the chips fall.

    Floridagirl1

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