As President George W. Bush and the U.S. Congress unveil the largest bailout in U.S. history (and the largest since the Great Depression), I couldn’t help but write about the vivid message this unprecedented action sends to all of us.

The Bailout

As this post goes up, I have no clue what kinds of details are included in the government’s plan.  What we do know is that it aims “to buy $700 billion in toxic assets clogging the financial system.”  In other words, it will “purchase bad mortgage-related assets from U.S. financial institutions for the next two years.”

So this bailout involves big government stepping in and trying to the problem. 

How We Got Here

But how did we get to this problem? 

We got to this mess because of . . . big government.  In the 1990s, new regulations “forced lenders into high-risk areas where they had no choice but to lower lending standards to make the loans that sound business practices had previously guarded against making.”  Lenders had to give out these mortgages ”or face stiff government penalties.”

Then, in the ensuing years, Freddie Mac manipulated its accounting to mislead investors, and Fannie Mae did not adequately hedge against rising interest rates. 

This was yet another government-created problem.

Big Government Problem + Big Government Solution = Problems For You

So we have big government trying to fix a massive problem that big government itself created.  The lesson here is that YOU–the individual American worker and investor–cannot depend on government for anything. 

Just imagine what kinds of consequences will result in the future from this bailout. 

First, these big financial institutions aren’t learning their lessons.  They over-leveraged themselves, and, for their bad decisions in that area . . . they’re getting bailed out?? 

You know what typically happens to a business that takes on too much debt?  In the real world (not this new government-controlled stock market), when a business over-leverages itself and can’t cover its debts, it goes bankrupt.  Its owners and managers walk away without work and with a valuable lesson learned.  That isn’t happening here.  Instead, these financial institutions made critical mistakes, and YOU, the taxpayer, (and not them), are paying for those mistakes.

Second, by bailing out these institutions, the government is injecting itself into a free market.  History has shown (in socialist countries) that, whenever a government tries to manipulate a free market or a free, capitalist economy, the result is inevitably a contraction of the economy, businesses, and capital.

Even though the stock market rallied late last week upon the announcement of the government’s bailout, don’t be deceived.  Sooner or later, the repercussions of this financial meltdown will be felt in the market.  And that means, a downturn in the financial system and, in turn, a downturn in the stock market.

Your Money

What do these problems (financial institutions not learning their lesson and a soon-to-be stock market downturn) mean for you?

Simple.  It all comes back to one of the main reasons why I started this blog: Working your entire life and saving money in a 401(K) isn’t enough.  I can’t help but feel concerned for those individuals on the cusp of retirement who have their entire retirement savings in the stock market.  If this bailout does not work, or if this bailout simply postpones the inevitable short-term crash that is looming, these on-the-cusp retirees will lose some of their savings. 

Investing in stocks is risky for many reasons, none other than what has happened this past week.  Putting your money and your retirement in the stock market is no different than putting your money in the hands of the executives and CEOs of these financial institutions.  They made bad decisions that resulted in a disastrous loss of value for their companies and for their shareholders.  Those decisions, in turn, affect your money. 

Entrepreneurship Is YOUR Only Bailout

Putting your money in a 401(K) and cashing it in at age 65 isn’t the way to go.  I’m not saying you shouldn’t do that.  Instead, I’m saying that it can’t be your ONLY course of action. 

Investing in real estate and starting a business are more surefire methods to securing your financial well-being.  Entrepreneurship is a crucial supplement and/or alternative to a 401(K).  If anything, do all of these things.  Invest in yourself, because the government is obviously not investing in you. 

After last week’s historic events and the impending bailout, this message could not be more clear.

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