In his speech Wednesday night, President Bush tried to persuade Americans to support his administration's $700 billion economic rescue plan by emphasizing how inaction could hurt all consumers.
"America could slip into a financial panic.... More banks could fail, including some in your community. The stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet.... If you own a business or a farm, you would find it harder and more expensive to get credit. More businesses would close their doors and millions of Americans could lose their jobs.... Ultimately, our country could experience a long and painful recession," said Bush.
Bush acknowledged skepticism of the plan and concern over asking taxpayers to fund Wall Street's mistakes. But, he said, not passing the bill could cause even larger problems, even for responsible consumers who have always paid their bills on time.
Bush also tried to explain, in everyday language, why this crisis came to be. He said that as foreign money flowed into the United States, Americans found it easier to borrow money for cars, tuition, and small businesses. The combination of easy credit and the assumption that home prices would continue to rise led to many consumers borrowing more money than they could afford. At the same time, a boom in housing construction led to a glut of houses, which depressed prices. Then, as some borrowers defaulted on their loans, which were often split up and held by different lenders, a "domino effect" of financial strain spread throughout the industry.
The rescue plan would work, Bush said, by buying up those distressed loans, which would then free banks to continue extending credit to consumers. Bush added that ultimately, the government could make money on the deal, because it's the only institution with the "patience and resources" to buy the assets at their current low prices and wait until the market returns to normal, at which point the government can sell the loans back to the market. "We expect that much, if not all, of the tax dollars we invest will be paid back," Bush said.
Bush also tried to reassure consumers—who have been alarmed by the stock market swings and financial news of the last few weeks—that the economy will recover. "In the long run, Americans have good reason to be confident in our economic strength," he said.
Robert Strupp, a Baltimore, Md.-based attorney and expert on foreclosures, says the proposed bailout could eventually help consumers who are struggling to pay their mortgages. If the government buys troubled mortgages from banks, then consumers may find it easier to renegotiate the terms of their mortgage to make payments at lower rates. Now, Strupp says, many mortgage holders don't have the capacity to offer such deals to customers.
Alexandra Armstrong, a Washington-based certified financial planner, says one of the worst moves for consumers to make now is to stop contributing to their 401(k)s, as some of her clients have tried to do. She says, "This is just when they should [contribute regularly], because it's cheap."