News shows and financial gurus alike have been clamoring all week about the 700 billion dollar bail out passed by congress last week. While these financial experts speak of the economy, politics, frozen credit and other implications of the financial crisis, few mention the effect any of this will have on ordinary Americans. Let’s take a look.

First we have to take a look at what caused this meltdown in the financial sector. Back in 1999, Bill Clinton signed a dregulating bill into law.  Essentailly this enabled, and even encouraged, Fannie Mae and Freddie Mac to provide a home mortgage for those who wouldn’t typically qualify for one.  So instead of paying 20% down and getting into a fixed rate for 30 years, which was a traditional mortgage, you had people paying 6% down, with variable interest rates that increased over time.  The idea was that poorer people could get into a house, and since the home would undoubtedly appreciate in value, they didn’t have to put much down and paid low interest up front.  The assumption was that they could gain wealth in the equity of their home and be able to afford the higher interest rates to come later.

Well Fannie Mae and Freddie Mac went through a decade of this type of lending.  The only problem was that the assumption was wrong.  Poorer people got into homes, yes. But they were not able to afford them. As soon as the lenders raised the interest rate, foreclosures were rampant.  Now in the world of lending, if the borrower doesn’t pay you back, you don’t make money. The borrowers were getting their homes foreclosed and declaring bankruptcy. Suddenly the lenders were running out of cash. This caused the credit freeze in which lending all but dried up.  Credit card offers stopped coming in the mail, small businesses weren’t getting their short-term advances to make payroll, etc. It really had a downward spiral effect.

To make matters worse, these lending giants in the mortgage industry had spilled into other industries. Because of deregulation, companies like AIG (American Insurance Group) not only got involved in insurance, but they were involved in lending, mortgages and investments. When the biggest player in an industry goes down, its normally not that big of a deal. Competition fills in the empty spaces.  However, when the industry leader happens to be a giant in three or four different industries, all of a sudden the crisis in the lending and mortgage industry is affecting insurance providers, credit providers, banks and investment firms.

So in a nutshell, what happened? Reckless lending and poor decision making. As a result, businesses in the financial industry were suffering and on the brink of failure. These institutions not only affected their own industries, but they affected the ability of a small business owner to stay in business.  They affected retirement savings accounts.  They affected lots of people in lots of ways. Enter the “benevolent” United States government.

Essentially the bail out provides the Secretary of the Treasury with 700 billion dollars to use as he sees fit.  This money will be used to buy near worthless assets from these financial institutions. So the mortgages that aren’t getting paid back are going to be bought by Uncle Sam. The hope is that they will appreciate in value again as home values start to increase again.  If that happens, they then sell back the assets for more than they purchased them for.  The American people will make a profit!

Don’t be fooled. Our government leaders have assumed things before.  We saw where that lead us. The bail out is going to have an impact on all of us, and here’s what it is.

The next President will take office in January. If all continues as is, they will inherit the largest debt and deficit of all time in American history. This gives the new President and the government two choices. They can either continue their reckless spending and borrow money from China to fund it, or they can curb spending and get the country out of deficit spending.

Let’s say they go with option number one. Within the next President’s term, the Dow would be worth about as much as an ounce of gold. Either the Dow would plummet or gold would sky rocket. Then countries with actual assets will be in control of the global economy. PS- we wouldn’t be one of them. We would be in debt to China so much money that we wouldn’t be able to afford the interest alone. The United States government would be in financial ruin.  This is bad when you consider the government funds, police, fire fighters, publice schools, etc. To sum it up, if we continue down the path were on, financial ruin awaits this country by 2012.

If we go with option two, which is most likely considering the positions of both candidates, then we can expect some lifestyle changes. The government will have to decrease spending or increase revenue in order to afford this bail out and the costly war in the middle East. Expect to see cuts in foreign spending.  The United States will simply limit it’s contributions to less fortunate countries.  Expect more cuts in education, as teachers with more experience will receive less of a pay increase. Expect no help when it comes to health care. Hope your employer pays for it or that you have a ton of money in a HSA. Expect the general fear and paranoia that has gripped this nation to perpetuate and grow.  This means no long lines at the mall on Saturday.  This means prices going up so businesses can stay in business. Beginning to see how this bail out is going to affect you and me?

Here’s what to do about it: send a message to the government. Vote out EVERY encumbent and replace the lot of them. Hold them accountable for their recklessness.  After all, it was Congress that got us in this mess, and now taxpayers are left holding the tab… a 700 billion dollar tab. We need to hold our government leaders accountable and responsible.  Those two words seem to be foreign to Washington D.C at the moment.

Another tip here for your financial future. Put your money in Wells Fargo or Bank of America. Wells Fargo is purchasing Wachovia and will be around for the long haul. Bank of America is the largest bank and will be around a while. Avoid any credit union like the plague. Just as fast as they sprung up they will all be going under. Americans are beginning to feel the pains of debt crunching them.  No one will be seeking credit in the near future for the most part. Avoid the stock market. If you plan on investing, go to a financial institution like Edward Jones for a financial advisor.  They will diversify your investments so that you actually make money rather than lose it. Don’t put all your eggs in one basket.

We can all make it through this time in our nation’s history. Just be wise, keep spending money on what you need and would like, but don’t use credit. Debt should be avoided like the plague right now. Keep your head above water and you will be fine. We’ll probably all look back at this and laugh. At least we all hope so…