Main Street and the Bailout

"The proposed rescue legislation accomplishes one simple goal: It provides a buyer (the Treasury) for financial assets that cannot be priced today because the market for such assets has temporarily frozen up, enabling financial institutions to stabilize their balance sheets, regain confidence in the system and one another, and start lending again.

The most critical point for the public to understand is that the money being proposed -- $700 billion -- is not going away. It will be used by the government to purchase assets at a negotiated price -- presumably a price based on the fundamental value of the underlying collateral (taking into account the underlying risks). When the markets recover, the government will then resell these assets -- perhaps at a loss, but not necessarily. The American taxpayer could break even on this transaction, or even post a financial gain.

In the meantime, consumers will see value as money starts to flow, home prices stabilize, and the economy avoids what could otherwise be a deep -- and preventable -- recession."