It’s been almost three weeks since the federal government doled out $7 billion. Generation Y, otherwise known as Millennials, will suffer the immediate and future consequences or benefits of the bailout plan and America’s suffering economy.

Unfortunately, Marilyn Dantico, political science professor says, “as time has passed, I am increasingly convinced that no one has a clue what the bailout (or rescue, as some prefer) means.”

But it’s the Millennials’ future and the Millennials’ kids that might be most affected by the weakened economy. So, if Dantico is right and the Millennials’ really don’t understand what the bailout means, here’s the breakdown...

Why We Need Help
In late September,politician Ron Paul wrote a persuasive editorial for CNN explaining the reason for a government stimulus package, and also offered opinions on what this could mean for America’s future. In “Commentary: Bailouts will Lead to Rough Economic Ride,” Ron Paul writes, “Ever since the 1930s, the federal government has involved itself deeply in housing policy and developed numerous programs to encourage homebuilding and homeownership.”

He explains that within the last decade Fannie Mae and Freddy Mac, government-sponsored enterprises that buy mortgages, developed a monopoly over the housing market because of government backing. New federal laws allowed people who normally wouldn’t be approved to obtain loans. Because of these factors and other monetary handlings of our government, there was a major housing boom.

“Because the boom comes about from an increase in the supply of money and not from demand from consumers, the result is malinvestment, a misallocation of resources into sectors in which there is insufficient demand,” Paul says. Houses were overbuilt so prices were dropped, but the government tries to keep the prices “artificially inflated” so that the economy doesn’t suffer.

The effects snowballed from there, leaving American citizens with huge loans to pay off, and the real estate sectors unpaid. The current economic depression America is entering into started with the real estate boom, but ended with an immense amount of government, corporate and individual debt.

Break Down: The Stimulus Plan
Seven billion dollars is a lot of money; it’s 700,000 hundred-dollar bills, and ASU students should understand where the money is coming from and where it’s going. ASU economics professor Edward C. Prescott argues that, “It is not a bail out. What people are being bailed out? The government will make a profit in using the $700 billion line of credit to buy equity in banks.” The government is using part of the $700 billion to invest in banks, which will hopefully help the economy balance out.

Forbes magazine provides a descriptive summary and analysis of the plan. In “Bailout Agreement Reached”, Brian Wingfield and Joshua Zumbrun explain, “The bailout, to be financed by government bonds, includes provisions to limit executive compensation for the firms that are being bailed out, an equity stake in those firms for taxpayers, an oversight board to account for the bailout process, and a measure to help prevent mortgage foreclosures.”

The $700 billion is broken down into three parts. $250 billion was paid immediately, $100 billion will be given after the approval of the president and $350 billion after the approval of congress. The original plan didn’t not provide any oversight, but after politicians spent hours debating and revising the plan, they came up with this three part division to prevent malicious or fraudulent loans and payoffs.

Prescott explains that the government’s “goal is to restore stability to our financial system. What is being done is buying equity (non-voting preferred stock in banks). This means they have more capital to use to meet their capital requirements. They will reduce dividends and buy back the equity they issued to the newly created government agency.”

What it Means and Why Students Should Care

ASU students have mixed thoughts on how our government is handling the situation. Ashley Villaverde, a law graduate student, says, “I don’t think it will work. I think that at least everyone learned a lesson from it for the future.”

Amber Leeson, biology and society junior, says that the bailout plan reminds her a little bit of communism. “Things are looking really bad. I feel like I’d be better off in another country,” she says. Villaverde keeps a more optimistic attitude and says, “What goes up must come down. It all bounces back eventually. I don’t think we’re doomed necessarily.”

In The New York Times article, “Here come the Millennials” Bob Herbert writes, “This is a generation that is in danger of being left out of the American dream — the first American generation to do less well economically than their parents. And that economic uncertainty appears to have played a big role in shaping their views of government and politics.”

Realistically, America could be heading into another great depression, and already the economy is looking worse then it has since then. It’s still unclear whether the stimulus package will succeed or fail. “I think if the government had started handling this a couple years back we wouldn’t be in the situation to need a bailout plan,” Leeson says. “It’ll provide short term relief, but I don’t feel like it’s actually going to do anything long term. I don’t know what can be said for the future.”

Generation Y will be affected by the state of our economy while pursuing jobs, buying homes, starting savings accounts, having kids and trying to establish financial independence and wealth. “Americans in this age group are faced with a variety of challenges that are tougher than those faced by young adults over the past few decades. Among the challenges are worsening job prospects, lower rates of health insurance coverage and higher levels of debt,” Herbert says.
Whether the bailout makes the economy sink or swim, Americans are going to have to deal with the economic crisis into the future, and the election is a good place to start.

“I think people are mistrusting government more and more. I think people look at this as the failure of our government to regulate. People see it as all the CEOs and top financial leaders that are the people that are somehow connected with our political leaders. I think this will change the way people vote in this election,” Villaverde says.

The next few years are crucial in deciding whether or not our economy will survive this trauma. Although the baby boomers are feeling the pains of the economy now, it’s the younger generations that will have to deal with the long-term affects. When ASU students get ready to head to the election polls, they should make sure to research our economic trauma and the political plans to fix it.

Reach the reporter at kahavens@asu.edu.