John M. Lee: Financial crisis bailout plan

I have been reading and monitoring our government's bailout plan the past week. We do live in unusual times right now, facing our worst financial crisis since the Great Depression. I thought the dot-com meltdown earlier in this decade was bad, but what is going on in today's financial market is even worse.

In a matter of weeks, some of what we perceived to be the strongest financial institutions in the world failed. Household names like Washington Mutual, Merrill Lynch, Lehman Brothers, AIG and Bear Sterns are no more. Fannie Mae and Freddie Mac have been rescued by the government. These are some of our largest, oldest and most prestigious names in the U.S. economy.

With our government working on the details of the bailout plan, people have mixed opinions on how to proceed and whether or not to support it.

A common question people ask is: "Who is paying for the $700 billion bailout program?" They say: "I am a law abiding citizen, I live responsibly, did not participate in this subprime mortgage scheme, did not benefit at all and I do not want to pay for any of the bailout. Why should the people who took out these loans, or the institutions that benefited by selling these risky products, be bailed out? If they made huge profits, like some of them did, why didn't they share them with me? So now they are facing losses. Why do I, as an average taxpayer, have to contribute to a mess I did not cause?"

Those are great questions and as devoted readers of this column know, I am of the opinion that the free market system works well; capitalism will sort itself out over time. I also believe in small government, that when government gets large, it creates inefficiencies in the economic system. So I have been struggling with the concept of a huge government bailout.

However, in this case, I do believe that a bailout would be beneficial to our economy, our financial markets and real estate.

The amount that is being discussed is about $700 billion. Based on about 300 million people in the United States, that's about $2,300 per capita. Some will have to pay more and some will pay less.

I am a pretty frugal person, so I don't like to spend any amount of money unless I can analyze its benefits to me. If at the beginning of this year, someone had asked me to pay them $2,300 to guarantee that my retirement plan will not decrease, my house value will not drop, and my net worth will stay about the same, I still might have said no way. I will take my chances.

But looking back now, if I had to respond to that same offer, I would gladly accept it and would be happy that I did because I would have lost much more than that in my retirement accounts, real estate holdings and net worth. Hindsight is always 20/20!

So the question of the bailout currently is: Will I be willing to spend that much money to have a chance to stop the bleeding of the financial markets? My response would be yes.

There is no guarantee that this bailout will work. But some things are for sure if our government does nothing; more financial institutions will fail, our economy will get worse, the dollar will get weaker, foreign investors will pull out of the U.S. market or demand much higher rates of return, unemployment rates will rise, stock markets will drop, credit will be more difficult to obtain, home prices will drop, and our society will be in more chaos.

So my current position is that this bailout goes beyond rewarding the bad guys and punishing good citizens; it's more about doing what is good for our society as a whole. It is important that we work together to get out of the current fiscal crisis.

John M. Lee specializes in selling real estate in the Richmond and Sunset districts. If you have real estate questions, call him at (415) 447-6231.