Financial Institution Bailout! Not a good idea - Different take.

Senator Charles Schumer suggested that government inject funds into financial companies in exchange for equity stakes and pledges to rewrite mortgages and make them more affordable. House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, this week proposed Congress create a federal entity to buy bad loans. Senator Hillary Clinton of New York, a former candidate for the Democratic nomination for president, proposed resurrecting a 1930s-era agency to stem foreclosures. ``We need a modern day Home Owners' Loan Corporation,'' Clinton said in remarks at the Senate today. ``There will not be any semblance of a normal or orderly market'' without ``quarantining'' the devalued loans outstanding, she said. (Taken fromhttp://robertreich.blogspot.com/2008/09/bailout-of-all-bailouts-is-bad-idea.html)

There are many people who are against this bailout because they feel that the fat cat CEOs of failed companies shouldn't get out of the mess they created. That the Federal government would end up buying assets for about 50 cents on the dollar that is only worth 20 cents. New home construction is very slow because there are too many homes and not enough buyers. These people believe that these companies gotten into this mess and only the invisible hand of economics should correct it.

Others think that without this bailout things would go from bad to worse. The pipeline of credit will continue to stopped up and constipated. Banks wouldn't lend money to each other money wouldn't be available to business for start up and expansion, money for home mortgages and consumer loans will tighten up. The Bail out would allow the Federal government slowly get these assets back into the economy at a value greater than they were purchased from the failing banks.

I see a more long term picture. I think these factors are insignificant to what is happening and more importantly is going to happen during next 20 years. See, I look more at the future of the population of the United States. There is a transition that's going to happen where the largest population is going to leave the work force and go into retirement. There is an estimated 80 million Americans born between 1946 and 1964 that are at this time just beginning to enter into retirement.

According to: http://calculatedrisk.blogspot.com/2008/01/employment-population-ratio-and.html
There has been a steady trend of a rising employment-population ratio since 1960. This is mostly due to more women joining the work force. It is very possible that this underlying trend is now flat, or even declining slightly, as the baby boomers start to leave the work force. Recessions happen when the working population decreases. See chart at: https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiu-74CXHmh76KtbikbC4JENZHNbKhiCb9QSGriErsKRruSRIGixUgvPr4_vwZlbjEv2waLBA1q32NjG9-VlO3w3VUJMG3TvjeqCW_GogjAGgr1MsuCCmhzgAe__URpXzh9iEyTnA/s1600-h/EmployPopRatio.jpg

First as more of the Baby Boomers leave the workforce the economy growth in the United States will either slow or decline. Recessions would be more common as groups of Baby Boomers leave the work force.

So how to the Baby Boomers effect the credit market? As people age in retirement, many of them think about down sizing their living arrangements. Retirement communities where they have to do little maintain a home. This means leaving that big home for a smaller home where all the outside maintenance can be taken care of through association dues. Millions of retiring Baby boomers will move in this direction. Large American houses will continue to drop in price because the next generation (Generation X) will not be a large enough population and wealthy enough to occupy them all. We might even see many low end starter homes get torn down because of lack of demand. The value of those town down homes would be written off.

By doing this bail out we are just making the pain last until the next housing market crisis ramps up again over the next 20 years. We should not do this bailout because we will get through this quicker and be prepared for the baby Boomer Recession(s) that's going to happen over the next 20 years.