Gorilla in the room holds our economic state and future in hand
Geoff Zahler
We have all heard the term “the 800-pound gorilla.” For those who have not, the term is used to describe an item that is so big it can do whatever it feels like. The term can also describe companies that have an extremely large market share in their given industry, like Microsoft.
The new gorilla in our world is a lot larger than the 800-pound gorilla. It is the $700 billion gorilla that is currently floating around Congress, trying to get the country out of the mess that we have found ourselves in.
There are 11 zeros in 700 billion. Even if the likes of Bill Gates, Warren Buffett and a few other billionaires were to pool every last penny they had together and donate it to the American people, we would still be considerably short of $700 billion. Their gift would only serve as a down payment.
This is the second go-around for this bailout bill. The first one, which was endorsed by everyone from Treasury Secretary Henry Paulson all the way up to President George W. Bush, failed by more than 20 votes. The news hit Wall Street, and the Dow Jones Industrial Average immediately plunged within minutes of the vote, closing the day down 777 points.
This 777-point drop was the biggest drop in the Dow Jones’ history. Over $1 trillion of investments were lost on Sept. 29. We are certainly living in a world of extreme volatility. While roller coasters are supposed to be fun, we do not know when this roller coaster ride will end. The uncertainty makes this ride scarier than most.
How did we get here? More importantly, what does this bailout mean for us? After passing in the Senate and passing in the house on Friday, the government has decided to make itself, meaning us taxpayers, responsible for paying off this bad debt that has been accumulating in the country for the last decade, with most of the responsibility on bad loans made by institutions. People are defaulting on their loans at an alarming rate and these institutions are not in a position to take the burden.
The bill also institutes a few changes to our banking system that have been around for the better part of a century. The biggest change that can affect individuals is the possible increase of Federal Deposit Insurance Corporation insurance from $100,000 up to $250,000 for one year. FDIC is insurance that member banks carry that insures deposits per customer up to this amount per year. FDIC was enacted during the Great Depression to avoid the event of people making a run on the bank and forcing a bank out of business for lack of funds. The increase from $100,000 to $250,000 is to give customers a better sense of security that their money is safe and will help to avoid future runs.
The true cost to the taxpayer is not known. $700 billion is the treasury’s best guess for a worst case scenario. However, if less is actually required, a profit, believe it or not, can be made on this money.
The situation will not be fixed overnight, but the best-case scenario is that this $700 billion gorilla does not gain size. If we think this number is bad, not doing anything now can turn this gorilla into a larger one.
Geoff Zahler is a columnist for The Nevada Sagebrush. He can be reached at gzahler@nevadasagebrush.com.
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