The Economic Bailout

Understanding the Bailout
It seems that no one really understands the bailout. This is not free money for banks. The problem stems from the housing collapse. Banks have locked up money in houses which normally, if someone foreclosed on, the bank could sell in a foreclosure and make the money back. Since no one wants to buy a house anymore, banks can't get capital (cash, in other words) to make more loans to other people for things like home improvement, cars, etc. Since they can't do this, and there have been bad debts from where people have just stopped paying their mortgages, the banks cannot try to make their losses back on the interest paid on loans. Without loans for businesses to expand, we run the risk of a recession (no new jobs, and I always hear people complaining about welfare and unemployment). The bail out, like I said, is not free money. It's the equivalent of the federal government buying into the stock of these banks so they have capital. The federal government will actually be buying up the bad debt, and once the housing market corrects itself (which it will), the feds will eventually get their money back with interest!! This means the government could profit from this move (stressing could). The bailout plan has called that any earnings above principal should be used for low income housing.
The thing is, the bailout would benefit the hard working people in America. These are the people who locked in their retirement on the stocks of the banking companies. Does anyone remember Enron? Do you only remember the CEO's that made away like thieves? What about the workers that lost their retirement savings? The bailout will help them at least be able to afford to retire instead of losing their entire pension and living in poverty.
These banks did a poor job of checking credit. The whole problem comes from a government mandate for cheap mortgages started by Jimmy Carter and reauthorized by Bill Clinton. This mandate was directed at Freddie Mac and Fannie Mae. The banks had their money locked into assets (houses) and claimed these houses as assets on their balance sheets and financial reporting. This showed that these banks were doing extremely well financially, creating incentive for other financial institutions to make the same loans available to profit off the same housing boom. The problem is that private financial institutions are not backed by the federal government like Freddie Mac and Fannie Mae.
George W. Bush and John McCain warned us about the pending problem as early as 2005. No one listened. The policies that were started and reauthorized by Clinton were noble; everyone deserves to own a home. However, when other lending institutions other than Freddie and Fannie Mac got involved, as soon as the housing market burst, it presented a huge problem for these high risk loans that were not going to be repaid. Seriously, "no money down, no credit, no problem"... does that sound like sound lending practices? That spells financial disaster when everyone is handing out these loans and then recipients default on them.
I will admit that one problem was a lack of bank oversight. The other problem was when individuals were buying houses they could not afford. People saw the "interest only" payments on their houses for the first 5 years under an Adjustable Rate Mortgage and then their house payments would dramatically increase in the following years in order to start paying back principal, too.
The real problem is we are a buy now, pay later generation/economy. If we only exercised some personal responsibility and self-control, we wouldn't be in this mess.