Its now official, the $700 bailout will go through with some modest changes from what was previously expected.  Oversight, the amount of money and the automotive industry were all tough topics in the discussion to write this bill.

The bailout bill was quick to denounce companies that are leaving CEOs with “Golden Parachutes” of cash that could be better spent on a failing corporation.  The bailout will not cover banks and other institutions that are paying CEOs large amounts of money to head the companies into failure, instead those banks will not be able to access the funds.

The automotive industry pounced on the opportunity to get $25 Billion of government money that would be used to back the debt of the big three automakers in the United States.  The argument is that if the US government can bail out the banks to eventually help out the consumer, keeping these automakers in business will help keep employment numbers up while helping out the basis of any economy; the manufacturing sector.

One big plus for the American people is the necessity for requests for future capital.  The $700 Billion will not be allocated in its entirety.  Instead, the government will collect capital in three phrases in order to limit the amount the Government pays for these assets and to limit the risk of overweight purchases in a very small and select number of financial institutions.  One large problem with the bill is the lack of consistency thus far in bailouts.  Bear Stearns was left to rot but then sold with a $30 Billion government guarantee, then you have Lehman Brothers which was left to go bankrupt, Freddie and Fannie Mac that were backed up entirely and AIG which thus far has received billions in loans after making a deal with the US government.

Effectively moving the money between the new reserve to the level where it can be invested to guarantee US mortgage debt and other bad investments will be the trickiest part.  To balance out a freshly created $700 Billion in money supply plus an already large yearly deficit of almost $800 billion per year, something will have to be done soon.  A $1.5 Trillion outlay both on the current deficit and the creation of $700 Billion in new money adds 15% more to the M3 money supply in just one year.

The chance that the US will see even a portion of the $700 Billion back is minimal.  Likely, most banks will take the cash to cover their bad debts and be worthless as they have no credit or capital to make loans though their balance sheets are clean.  For this plan to work, more bailouts would have to follow along with huge inflationary steps to bolster money supply to the point where $700 Billion is a drop in the bucket.  Simply, to get all of the $700 Billion back, the US government will have to continue with inflating the currency, doing so of course will cost the US dollar even more.