great answer. it seems like everyone is in a tizzy, while this probably will shake itself out during Christmas season. that's my guess.

How will the bailout affect me? Hmm.

My house will smell like old people afterward.

"That nice man at the bank" convinced my mother in law to put all her life savings, bonds, stocks, into an annuity. "The man said it will make things so much easier for my children when I pass away because all my money will be in one place." Ah, deregulation- it brings the family closer together.

@no.no.notorious: Yeah. Christmas 2010.

So ultimately, does the bailout get paid for by the taxpayer, or does that money magically appear from somewhere else? Where exactly is the government borrowing money from?

@magic8ball:

The government borrows the money from anyone who will buy government securities. Who will repay the debt is the real issue here. Unfortunately, we will, as will our children. Servicing the national debt will become a larger part of tax revenue, so we will either be in a larger annual defecit, cut government spending, or raise taxes (or a combination of these). As for the debt being paid off? Probably never going to happen. If we were actually able to run on a balanced budget for long enough while servicing our debt, the debt would become less and less a percentage of tax revenue (assuming tax revenue increases in the long run). This would make it theoretically less of a burden to pay down, but who knows at this point? If the taxpayer is so easily called upon to go into more debt over greedy/stupid corporations' practices, my guess is we'll always be bailing someone out. Now if you'll excuse me, I'm off to buy some gold.

Sounds to me like the cure is worse than the disease. What are the negative consequences of not having a bailout?

You can also expect all the treasury bonds, money market, and municipal bonds go down into the toilet.

It will mean a tougher time for local governments to get their debt serviced.

Oh yeah...those troops in Iraq might not have the funds to stay regardless if McCain wants them there. Good luck finding the dough to keep this war going on past this year.

@B: Sounds like over the last 24 hours a lot of people are asking that very question.

@ironchef: I think it's important to note that money markets have already 'broken the buck' and had a return of ~97 cents on the dollar.

Um, this might sound like a silly question, but what happens to the $500 in savings bonds I've had since I was a kid? Are they depreciating in value, or is there going to be a problem redeeming them?

I know it's only about $500(ish), but my poor grandparents faithfully bought a $50 bond for me each year as a christmas present and I'd be pissed for them if their gift is worthless.

@Fujikopez: I'd hang on to them unless you need to spend the money right now.

@darkjedi26:

Depends on the bonds themselves. Some of them stop earning interest once they reach maturity - if you have those, you should cash them in if they've matured, since you're get 0.0% on them.

This calculator will tell you what your bonds are worth at the moment: [www.treasurydirect.gov]

@lightaugust: I'm sure if this wasn't an election year, the answer might not quite be the same.

Fuji

If you bought Series E bonds, then it's half value that gains interest until 10 or 18 years (depending on where you got it). The rates on savings bonds are guaranteed based on the date when they were purchased.

If you bought Series I bonds, then it's already worth face value and is gaining interest.

Either way your safe, but for people buying bonds now - they're screwed b/c the rates will be very Danny Devito (...low to the ground).

So should I start putting money in my 401k, or should I save it myself, and dump it later when the market is better?

Also, how are mutual funds affected? Should I look into that as opposed to the 401k for now?

My company does matching on an annual basis, which is up to 5%.

@JustThatGuy3: Seconded. Money sitting in a matured savings bond is wasted money. Even in the simplest scenario, sell the bond to buy 2 more of the same type. You're money's tied up for another 7 yrs, but who knows, that may turn out to be a really safe place with the current market outlook...

My whole view is that the ecomy will be down but not necessarily down for everyone. Sure a sinking tide lowers all ships but NEVER be afraid of looking for new opportunities. Heck, I just got a raise and I just joined the investor class this week so many people will ride this out just fine.

I'm so glad to see this article/thread here!

I would like to know about mutual funds too. I was surprised when my mutual funds didn't completely dive over the past 6-9 months (though they did go down). Is it time to get out and stick the money under the mattress or is it too late? (We're also planning on buying a house within the next 6-18 months.) How long before mutual funds might recover?

Thanks, everybody!

One real effect on people is that their vacations will suck ass as dollars become Uncle Funbucks in many countries outside the USA.

@sir_eccles: I personally love how this is exploding less than two months before the election. It FORCES the news media to pay attention to the issue.

@RStewie: I would only contribute up to the match point. Consider that your free money, anything else is a fools bet. Also, check out where your 401k is being invested, and if you have any say about it.

@RStewie: I'm not a finance expert, but (if you can) I would contribute what it takes to get that match. That's "free money".

I am also wondering if people are taking advantage of the market... "Buy low, sell high", right?

@DemolitionMan: I have several options, by risk. Gov't funds, stable funds (domestic), stable funds (some foreign), not-so-stable, and foreign. They're suggesting, based on where I'm at in my career (Not close to retirement age) that I go all out.

Is there really a crisis though? I pretty much bought it that there is - I'm not very savvy about all the intricate financial stuff; and I have been trying to read up on all the issues to better educate myself. I do have some investments and I will be hit a little bit but I think I will be able to weather it; And then I see this video:

And this post [openleft.com] and I get to wondering just what is going on - I am getting lost as what is going and why this quickly. Is this one last scam before Bush moves on?

@Fujikopez: hang onto them. i just cashed some in recently (they were past maturity) and you definitely get more than you paid for. you pretty much get the inflation plus some small risk, since the government had your money for a period of time (which you could have used to invest in other things.)

every 10 years, the economy is supposed to have a recession/restart itself. it was supposed to happen in 2000, but it didn't. economy has cycles and things will pan out before you know it, then we'll all be saying 'omg remember when we were freaking out for no reason?' kind of like y2k

@RStewie: Not sure if "all out" holds true "today", but the justification is you're young and have enough years ahead of you to weather a few downturns.

I've always been told to assess the level of risk I am comfortable with and diversify across funds within that risk level.

@All: Please do chime in.

@sir_eccles: I agree with the sentiment, but I don't know... it seems that any principled conservative who's been screaming about the free market and taxpayer money and any democrat who's been for responsible, well regulated capitalism have been forced into an uneasy alliance against this this. I'm dangerously close to respecting any politician who says we just can't take the easy way out on this, regardless of party... since there are plenty on each side who would take it. Not to mention an inept president with a power hungry set of friends.

I was planning on starting my retirement investments this year, probably a Roth IRA. I'm 26 and have always heard "earlier the better", but, in light of the news, should I NOT do that now?

If you have a credit card, and the card issuer runs into financial issues, you could also face a situation where, despite your own credit being shiny and clean, your credit transactions are rejected by merchant processing systems because of your issuer's problems.

@RStewie: AT LEAST do the matching. Right now is actually a great time to throw the kitchen sink at your 401K, espescially if you're young.

Since the market is so down, your money is buying you more vested shares, which will eventually appreciate in value. The more shares you can pick up on the cheap early, the more compound interest you are going to see in the long run, which is really what makes the 401k so wonderful.

I would like to know the names of the CEOs who have said they would not ".......cooperate with the bailout if they are forced to yield to a salary Cap......."!

@no.no.notorious: I sure hope you're right but I'm going to prepare for a worse outcome.

Thanks all.

@LastVigilante: see my comment above. Now is the best time to invest _if you're looking to make a long term profit_

The market will eventually turn around, and the more you invest in a low market, the farther ahead you'll be when that equity appreciates.

Lucky for me, I'm planning on shedding most of my spending anyway. Nothing like a car payment to kick you in the shins and steal your money!

I hope this won't affect my car loan - I have great credit, I have no substantial debt (student loan) and this is the first loan I've applied for in my whole life. I promise, I'm not stupid.

@LastVigilante:
Quote from Warren Buffet: "Be greedy when others are scared and be scared when others greedy". IMO, morbidly, this is good time to invest. You should talk to someone more professional that seems to know what they are doing though. Here is a great blogpost I read recently on it:
[www.getrichslowly.org]
Always do your due diligence though before investing in anything.

@parkavery:
Hi Park,

Unless you absolutely need the money--your best bet would be to stay with the funds you have--you haven't technically "lost" anything until you sell. And now is NOT the time to sell.

I am not sure who you have your funds with, if you are paying a load/no load, and what kind they are (sector, index, etc) but if history is any judge--they could return to their value within 1-2 years. Its just a matter of time, and if you can wait.

I hate to sound Pollyanna about it, but this is a great time to actually purchase real estate/funds etc because there are some real bargains.

Just my opinion.

@lightaugust: I think Dodd's doing a pretty good job, but I"m also afraid that the other party will wait for this to pass - even with Dodd's stipulations against executive compensation and other protections - and then they'll beat the Democrats over the head with it for the next 44 days, screaming that the mean ol' Democrats gave corporate welfare away and that they hate little kids with American flags.

Never mind that Republicans made the entire mess possible by deregulating investment banks. Removing well-considered regulations enacted by Democrats. In the 1930s.

It is interesting to see your own comments as a topic...

@LastVigilante:

I wouldn't advise anyone to try and time the markets, but honestly if you get in now, you'll be buying a heck of a lot closer to the bottom than the top. Also, at 26, you've got many years to see great returns that will average you out even if we see another 18 months of rough waters.

Look at it this way, would you rather buy in before the Dow tanks 700+ points or after? You have to think of investing in the financial markets in the same way you'd think of real estate: When lots of people have been wiped out, those with the cash can buy at extreme discounts and see fantastic gains in a short amount of time.

As cliche as it sounds, the best way to make money is to diversify (health care stocks are up almost 5% in the last 3 months) and to invest with a long term outlook (check your portfolio no more than once a week, once a month if you can stand it).

I had a client cash out his entire investment portfolio (against my advice) last Thursday morning. Had he not looked at his investments until Monday morning, he might not have noticed anything had happened.

@LastVigilante:

If you are truly concerned, you could always get a Traditional IRA. That way, you'll immediately "get profit" by saving taxes for the year.

So a $2000 IRA should net you a savings of $300 you won't have to pay in taxes. So you will already be 15% ahead.

Of course, you will have to pay taxes on that income when you retire, but its a way to have peace of mind in the short term--knowing that the market (and your fund) would have to drop 15% before you even started "losing" money.

One question I have that has yet to be addressed:

What do I get for being a responsible adult and paying my bloated mortgage on time? I've lost $50k in value on my home and have been forced to stick with a smaller house than I need because it's impossible for me to sell. What's stopping me from buying a second home, moving in, then short-selling or sticking the bank with my current home so I can get into the size home I need for my rapidly growing family?

With all this chatter about bailouts, I want to know what is being done to correct the bloated values that created this mess and forced many people into paying much more for a home than it was worth.

$225k is what I was able to afford, but it forced me to move 50 miles away from work and family or be faced with living in a ghetto or a shack falling in on itself. In my case, I didn't buy more than I needed or live beyond my means, but the distance sacrifice I had to make to live in something decent because of bloated home values.

Can anyone shed some light on this aspect? Will bloated home values be reviewed in this bailout, or will wall street be only ones who get a safety net?

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@He:

But in a reverse way, it has helped Tourism in this country--just got back from Disney where 80% of the guests seemed to be visiting from other countries.

I spoke with one from England who said they could never afford until now since thier pound is worth twice as much as our dollar.

@CreativeLinks: Thanks a lot for the advice. I appreciate it.

We have some savings squirreled away in the bank but we were hoping to add the mutual fund money (it isn't a lot, but it's something) to the down payment too. We may have to hold, though; I guess we'll see what happens when the next statement comes.

Anyway, at least I got something right: I've been telling my better half that now is the best time to buy a house. :)

The original bailout plan did not. However some Democrats have insisited on it, holding up the bill:

"Despite strong opposition from the banking industry, Democrats insisted on granting bankruptcy judges the power to restructure bad home loans or adjust monthly payments as a way to keep people in their homes. And lawmakers included provisions to cap CEO severance payments, mindful that chief executives of failed mortgage companies Fannie Mae and Freddie Mac were in line to get severance packages worth tens of millions of dollars."

Entire article at Boston.com
[www.boston.com]

@B: Well what Paulsen and Bernanke are saying is, if we don't bail out banks now, the credit freeze will continue to prevent an upturn in the housing market. Furthermore, banks will continue to lose ground on their so-called "Tier 1 Ratio", which is basically the amount of money they have to have on their books to cover deposits. Most banks need around 10% of their deposits in cash to survive a run, Bear and Lehman were both substantially below that number when they failed. So as long as banks keep writing off bad debts, their Tier 1 Ratio keeps falling, then other banks refuse to do business with them, and it becomes a downward spiral. One domino falls, then the next, then the next.

Again, this is the argument that Fed and Treasury are making; there is of course slivers of truth and fiction in everything.

I just started my first real job, and have no money invested in anything. I do have lots of student loans, but their interest rates are dropping.

I don't plan on retiring for 35-40 years. Am I wrong, but isn't this a good time for me to put a lot of money in the stock market, while prices are low?

Wouldn't it be good for me to buy a cheap house pretty soon?

I could be wrong, since I don't know much about these matters. But it intuitively seems like starting out during an economic downturn is good luck, giving one the opportunity to buy low.

@Fujikopez: Heh, the funny thing about your question is, you're the other side of the bail out equation. See all those people in this story asking "who loans the U.S. all this money?" Congratulations, hold those bonds, and you do. :)

Spatula...doesn't life stink!! I have had it with these CEO's and other people who have TONS of money and don't pay back loans!! Darn it all! I paid back all my student loans, 1 car loan, now working on another car loan, and a current mortgage. What do I get for being honest??? I don't have much money in my savings and I haven't gone on a vacation in years. But look at these CEO's ripping off their companies and Doctor's not paying back their loans or following through on their obligations. It just stinks to high heaven.

@TheSpatulaOfLove: I think the inability to borrow the money for the second home would stop you. Right now credit is tight. I'm not 100% certain, but I think the bank would reject your application now that there aren't many lenders looking for a risky proposition.

What the bail out is doing is taking a 700 billion dollar water drop and dropping it into a 48 trillion dollar bucket of mortgages. They figure as much as 15% of those mortgages will default. I'm not sure what effect that 700 billion will have on the 7 trillion dollar defaults or how that will interact with the housing market. I know it's going to devalue the US dollar and I know this inflation won't come with a comparable wage hike. So their stealing from all of you to possible blunt the problem a little or at least put a floor on the losses. Property values are going to continue to tank for the near future (next 1-2 quarters). Until epople feel the market has hit bottom.