Understanding the Bailout: How Politics is Underpromoting Main Street in Favor of Wall Street

Part 1:

As part of the largest and fastest growing network of local business owners in the nation, it's important that myself and the MerchantCircle team spend as much time as possible talking to the local business owners that make up who we are. In this defining moment of our economic history, almost all news stories have been focused around collapsing stock prices, epic bank failures, and $700 billion dollars worth of government bailout. Lost in the mix of financial terms and rhetoric, is what the $700 billion would've meant for the working man and woman, local business owners, and the next generation. Not one story has been written about what may happen to the employees of Washington Mutual, which was the largest U.S. bank failure in history, before being bought by JPMorgan Chase & Co. Regardless, many of the business owners I’ve spoken to still understand the consequences of inaction and the trickledown effect of a sputtering economy.

While in my home state of Alabama, I've spent the last few days meeting and learning what concerns business owners and their employees. I think Washington saw the rude awakening that was in store when they failed to properly gauge the viewpoints of everyday business owners. Some congressional leaders were bombarded with calls from their constituents at a clip of nearly 200 to 1 - against the $700 billion dollar bailout. The vote was 13 votes short of passing, with a final of 228 to 205. While it's still up for debate on whether the failed resolution will cause a complete collapse of the U.S. economy, the Dow Jones industrial average did sink 777 points because nothing was done. That’s about a $1.2 trillion drop in value of all the companies publicly traded on the Stock Exchange – hurting many with a pension or 401K plan.

In theory, the $700 billion dollar bailout would've kept banks open to small business owners in the form of mortgage loans, business loans and other consumer borrowing. In recent weeks, banks and firms had stopped loaning to each other as depreciating home values and foreclosures wiped out the possible pool of money available to loan to small businesses. The bailout would have allowed the government to purchase troubled assets from these financial institutions, which, in theory, would allow banks to regain confidence in lending.

It doesn't help financial institutions when customers withdraw money in droves. For every one dollar that comes out of a bank, that's essentially 12 less dollars in the U.S. money supply. Which is essentially the reason behind the collapse of Washington Mutual. This may also have an adverse affect all across the board, which is why the government feels it needs to step in immediately. If the banks stop lending money, then everyone will be broke and stop buying things. If people stop buying things, every company will lose revenue, which could then lead to job cuts and a deeper recession.

Much of what the government overlooked was how the rest of the nation would see this resolution. The way that it was reported, made the bailout seem like this would rescue big institutions, when for years, many small business owners have been struggling with no intervention from the government. The bailout would have done little around directly helping out those whose are in danger of losing their homes and facing foreclosures. To put the $700 billion in context, there’s about 25 million estimated small business owners in the nation according the U.S. Census. If the government were to distribute that bailout money amongst the nation’s business owners, that’s about $28,000 for every merchant to try and grow their business and the economy. Distributed equally between the nation’s 300 million people? That equates to about $2,300 a person.

While speaking to businesses such as Pink Pony in Gulf Shores, AL, Paradise Marine, Sportsman's Marine in Fairhope, AL; Bay Breeze, The Charter Boat MAR-T on Dauphin Island, and Julwin’s Restaurant in Fairhope, AL amongst others the last few days, I learned that many of them have cut their work force in half over the last few years. With a loss in sales, these business owners saw the bailout as necessary to stave off further economic disaster from future bank failures. It’s the masses who shop on Main Street who see the bailout as using tax payer dollars to help out the upper crust of Wall Street. There is no way the bailout will not cause outrage from everyday citizens, especially when so little is advertised for those who are struggling. If a new resolution hopes to pass, it would be better served if the White House and Congress spoke directly to Main Street consumers about how this resolution is helping them out directly and not just bailing out the “greed” in Wall Street. Many in local communities spend little time checking the Dow Jones industrial average, as they worry about problems that are closer to home and economic conditions that have forced them to lay off their employees and find new methods towards acquiring new customers.

This bailout is critical to local business owners, but the positioning towards Main Street America is wrong. Small business owners I’ve spoken to have expressed to me that the nation needs a working bank system for running their business and consumers need to have credit. This bailout cannot ONLY be seen as bailing out Wall Street. The consequences must be seen on a more ‘local’ level. Often times, the most vocal constituents are the ones who disagree with something. Many of the business owners and employees I spoke to did not know how to go about reaching their local representatives or even if they would listen. Well, with the failed bailout, it’s obvious, many representatives listened to their constituents. It’s time YOU voiced your opinion as well – for a list of contact information you can click here to find a link. When the next bailout proposal hits, let your congressman know how you feel.

Sincerely,
Ben T. Smith
Co-Founder and Chairman, MerchantCircle

In next week's Part 2: read about what you should do as a business owner and how you can protect yourself.