The average taxpayer should be concerned about the country's massive debt and who is going to eventually pay it back, said Brad Young, owner of Maryland Financial Planners in Frederick and a contributor to The Frederick News-Post's Money Panel.--

"High debt and deficits will only lead to higher interest rates and eventually those dirty words 'higher taxes,'" Young said.

Taxpayers are bailing out other taxpayers' bad behaviors, said Joe Dahms, former chairman of the economics and management department at Hood College, who is on sabbatical but teaches at the school.

"Somebody has to pay those $700 billion," Dahms said. "It will take many years to pay for this."

The value of the dollar would have continued to decline without government action, said Herb Wolf, manager of the Frederick office of Cantella & Co., a Boston-based investment advisory company.

"That would have meant higher inflation and a continuing slow economy," he said.

Americans are a 100 percent responsible for their 401(k)s, Wolf said, and the government had to step up because the value of 401(K)s were in danger of free-fall, Wolf said.

"The legislation is intended to prop up the securities markets -- the bonds and stock market," he said.

The unfortunate part of the bailout is that it will also lead to much tighter credit standards and many will have a tougher time buying a home, Young said.

Making profit off bailout

Dahms said it is possible that the $700 billion tag will be less if Treasury officials are savvy enough to buy the bad mortgages at a steep discount, hold the debt and sell at a profit at a later time.

With bad debts being taken off the books, banks will get stronger, said Tom McLister, manager of Bank of America's mortgage office in Frederick .

Banks could keep mortgage rates lower, which would lead to a stronger real estate market in the county and nationwide, he said.

McLister thinks the road ahead will be rocky, but the government could turn a profit on the bailout if stressed properties increase in value and are sold.

In the near future, it's likely that housing prices will stabilize, said Alejandro Canadas, assistant professor of economics and finance at Mount St. Mary's.

In the meantime, the government is taking the risk for those assets, not the banks, he said. Canadas said taxpayers aren't at risk for the $700 billion.

"The government will back the bad debts and sell them as debt securities. For that reason, investors who buy the securities, not the taxpayers, will pay down the bad debt," Canadas said.

Boost in confidence

The bailout's most direct effect will be a boost in confidence in the financial markets and an increased ability for banks to borrow from one another, Canadas said.

Banks have struggled to borrow money since the bailout of Freddie Mac and Fannie Mae, he said.

Banks traditionally lend money to each other, but the bailout climate caused bank officials not to trust each other, he said.

The bailout will create a climate where banks will be able to lend each other money again, Canadas said.

Banks in Frederick County are much better off than in other parts of the country, he said, and the bailout will let local banks meet their obligations every week.

Local community banks have healthy balance sheets and didn't take the risk some of the national banks did," Wolf said.

"Some of these banks did not have a single subprime loan on their books," Wolf said.

Post your comments »