Readers weigh in on the financial mess

What will happen to the average American if we don't do a bailout at all? I realize those banks involved will probably tank, but what does that mean for the rest of the country?
— Matt

It's difficult to speculate on exactly what might happen. For one thing, while this is clearly the worst financial crisis since the Great Depression, the current circumstances are unique. So making comparisons to past financial panics only gets you so far.

The central issue is the slowdown in credit — upon which we all depend heavily. It's hard to see this on a personal level: You go to the ATM machine and money still comes out, so what's the problem?

The problem is that river of money runs much deeper through our economy than the ATM machine, and there are already signs of spot shortages of money. If money stops flowing, businesses can't function, they lay off workers, those workers have no money to buy things, and around it goes. Here's how Mr. Bernanke described the risks of doing nothing:

"I believe if the credit markets are not functioning, that jobs will be lost, the unemployment rate will rise, more houses will be foreclosed upon, GDP will contract, that the economy will just not be able to recover in a normal healthy way no matter what other policies are taken."

Where did the amount of $700 billion come from?
— A. Fisher

It appears to have come out of thin air.

Fed Chairman Bernanke gave a hint in Wednesday’s testimony, though, when he pointed out that the mortgage market represents about $14 trillion. So 5 percent of that is $750 billion.

By way of comparison, the current default rate on mortgages is about 6 percent.

What are the chances that these huge sums of money for bailouts, homeland security, Iraq and Afghanistan wars, etc. are actually going to some other covert cause or even to buy appeasement from extraterrestrials??
— Everything in Moderation

We have a call in to msnbc.com's Extraterrestrial Bureau, and we'll report back what they say.

Why don't they make the banks rewrite the bad mortgages they sold? Maybe giving a fixed rate and extending the time for repay. Then the people getting these loans would be responsible for their own bad decisions.
— MiMi

One reason is that the bad loans in question are now bundled together in big packages which are in turn owned by thousands of different banks, hedge funds, governments and other investors. If you sit down to modify one loan, you have to get the change approved by hundreds of unrelated parties. Multiply that by millions of loans, and you've got a complex mess. No one has figured out how to unscramble this omelet.

Treasury Secretary Paulson has said that's one reason for having the government buy up these loan packages: Homeowners could then negotiate a better loan with Uncle Sam. But even if the Treasury bought every mortgage backed security out there, it would take months — if not years — to unwind all these bundled mortgages.

The worry is that we don't have that much time to prevent the credit crisis from spreading and doing long-term damage to the economy.

Also in msnbc.com business AdBlog: JCPenney gets in the doghouse Answer Desk: Oil prices boom and bust Your Career: Expecting pink slip? What to know ConsumerMan: Just say no to gift cards   Video: Now is a good time to refinance

MORE FROM ANSWER DESK

Answer Desk Section Front

Explaining the oil bust Cash out my 401(K) or hang on? The debt legacy Time to end oil tax breaks? A 401(k) urban legend How low can stocks go? Who made this mess? Where did the money go? Can’t we put the bums away? What's your take on bailout? Answer Desk Section Front   Add Answer Desk headlines to your news reader: