The tab for this massive Wall Street bailout just keeps climbing. Industry by industry keeps heading to Congress and the Fed looking for money. Meanwhile as the tab keeps climbing, so does the unemployment rate and foreclosures are still a massive problem. We were told that we are having a credit crunch and that these unprecedented amounts being used to bail out the banks, auto industry, insurance companies and more will loosen the credit and allow it to start flowing again.

Meanwhile, mortgage rates are heading up slightly and banks are using the bailout money to buy other banks instead of loaning out the money like they were supposed to do. The Fed is even picking winners and losers. National City was one of the top ranked banks until recently. The Fed announced that they were not going to loan money to banks that were going to fail and then announced that they were not going to loan money to National City. This caused a bank that was in excellent shape with great deposits and in not danger of fail to lose the confidence of its depositors. This in turn is causing the bank to have to sell out to another bank. Politics at a grand level. National City is failing not because of itself, but because the Fed decided that they did not like that bank.

Estimates of the total bailout are currently at 7.4 trillion dollars. When it began, it was 85 billion dollars for AIG and 700 billion dollars for troubled mortgages. It has shifted to basically a buyout of the banking industry leaving the Fed in charge. It has grown week-by-week and sometimes day-by-day to about 7.4 trillion dollars in direct handouts, buyouts, and loan guarantees. This is about half of our GDP for 1 year. Who is going to pay for all this? The taxpayer, you and me!

It all basically started with the housing industry overbuilding across the country and banks being pressured by the Democrats and Congress to give out home loans to people who could not afford them, loans we now call sub-prime loans. The rise in mortgage rates and then the rise of the interest rates in those adjustable rate mortgages coupled with the decline in employment dramatically raised the foreclosure rates. The banks knew that these mortgages were in trouble, so they basically bought insurance policies on these sub-prime loans. At the same time, someone figured out that they could bundle together large numbers of these iffy loans and then sell them. The banks, insurance companies, and investment groups buying these provided the money for mortgage lenders to make more sub-prime loans. It was a vicious cycle.

Once the foreclosure rates started climbing, there was not enough money in the banking and insurance industries to cover the losses. I saw one house in my area that was worth about 75,000 sell for only 26,000. No bank or insurance company can sustain losses like that. So the government stepped in and started handing out money to keep them in business and to try to keep the stock market up.

Here is why the bailout is a failing policy. It might prop up the markets (somewhat) for a while, but it is not stopping the cause. The cause is the overbuilding of homes and foreclosure rate. While some banks have announced that they will rewrite some of the failing mortgages, not all of them are doing that. It is too late for that now. With the economy heading south, that policy will just require more and more mortgages to be rewritten and more and more taxpayer dollars heading to the banks.

What should have been done with the initial 700 billion dollars was that it should have been given to the taxpayers. 700 billion dollars divided by a little over 300 million people is about 2,000 per person in this country. That money should have been sent to the people, not to companies. A married couple would have received 4,000. A couple with 3 kids would have received 10,000. And so on. How would this help us?

People who were facing foreclosure would have tried to catch up their mortgages. Others would have paid bills with their money. This would have put money into the banking system from the bottom up. It would have solved their cash flow problems. It would have taken houses out of foreclosure, which would have lessened the burden on the insurance companies.

A large chunk of that money would have been spent on consumer goods also. This would have kept a lot of jobs from disappearing. True, a fair amount would have been spent at Wal-Mart and such, boosting the amount of imports coming into this country, but a fair amount would have been spent on American made goods. It might have been enough to boost us out of this recession before we got in too deep. But whether importers or domestic producers, the extra money coming in would have meant not having to lay people off and being about to pay their own bills.

It is still not too late. Obama and Congress can do the right thing. This involves giving the hurting people of this country the bailout money, not the hurting companies. Once the money gets into the hands of the hurting individuals, the money will trickle up to the hurting companies, eliminating the need to hand dozens (or hundreds by the time this is over) of companies billions or trillions of dollars that come from us individuals anyway. Let that money be in the way of payments for goods, services, and debt repayment so that it does us some good. Right now, we still have all of our bills and now we have the need for higher income taxes to pay for these bailouts. End these taxpayer bailouts of companies and give the taxpayer a bailout instead.

           In the midst of our country’s financial problems and the 700 billion dollar bailout going everywhere but where it was originally supposed to go, Detroit is now asking for 25 billion dollars in addition to the 25 billion dollars the Congress has voted to give them. American automakers asking for more government money while foreign automakers with plants here in the US are not. With the Democrats and the unions in charge of the House, Senate, and the presidency, they will get it. But the question is, should they?

            Detroit’s track record has not been good for a while. After fuel prices went up after 9/11, they were developing engines and cars that were more fuel efficient. After the fuel prices went back down, they cancelled their plans and programs and went back to producing the same cars and trucks that they had been producing. Even while watching their market share drop, they still do nothing about fuel efficiency. They just brought back car names from the past in hopes of luring middle age buyers back to them. They seemed to completely abandon the idea of fuel efficiency even though everyone else seemed to know that with more and more countries using more and more oil and with world reserves declining, prices would start going back up at some point. If they had not abandoned their programs to develop more fuel efficient engines and cars a while back, they would not be in the position they are in now.

            Given the amount of people who would be out of work if the Big 3 failed and the effect on our already damaged economy, should they get a government bailout? In one word, Yes! But, with some serious strings attached for both the companies and for the unions.

            On the part of the companies themselves, there should be big managerial shakeups. Not just the CEOs, but the heads of most departments including R&D. While the CEO steers the boat, the other department heads take the policy directives and expand on them. Obviously, they are at just as much fault as the CEOs. The new CEOs and department heads should have smaller salaries, but have bonuses (smaller than current bonuses and no stock warrants) that are tied to the company’s performance. No more 7 or 8 figure compensation packages. You cannot ask the unions to take a cut when the top people are making millions.

            On the part of the unions, there should be pay cuts and a two-tiered wage system. First, it is hard for the Big 3 to compete when they are paying basically 70-80 dollars per hour for labor. There should be a small pay cut on the part of hourly employees. Possibly pushing back the amount of years they work before they can retire with benefits also, add another 5 years. Right now, the companies are paying people to stay home and not to work (retirement). Have the employees retire at 35 years instead of 30. Second, classify all current workers as Type A employees. All new hires would be hired as Type B employees. Type B would start at a much lower wage (about $15 per hour), would have the longer amount of years to work before being able to retire, would have no health benefits after they retire (they would have to rely on Medicare and private insurance like the rest of us). This will in the long run, lower the labor cost and operating cost of the Big 3, making it easier to be competitive in today’s (and the future’s) economy.

            The changes that the companies and the unions would have to make would have to be mandated by the government as a condition for the bailout money. Obviously neither the companies or the unions are going to like it and are going to fight the changes. But the companies and the unions need to realize that business like usual is not going to work anymore. If the companies want to stay in business, they need to change. If the union workers are going to still have jobs, the unions will have to make changes also. If one or both of them decide not to make the changes above, then no bailout money. If they can both make the changes, then yes, give them the money. But changes first, money second.