With the media and the eyes of the country focused on the November presidential election, too few have noticed that the American economy is falling apart. Big time.

Years of government deregulation and financial irresponsibility from both lenders and borrowers led to what is without a doubt the worst credit and financial crisis the United States has faced in decades.

Last week, while major news networks brought you Obama in Florida and McCain in Wisconsin, Wall Street was falling apart. The Dow dropped over 500 points on Monday and 450 points on Wednesday, companies were going bankrupt and hundreds of workers lost their jobs.

It is hard to believe that few saw this coming. All signs pointed toward economic crisis – from home foreclosures to arbitrary changes in interest rates to mergers and bankruptcies – yet the country ignored the problem, with some “experts” refusing to even admit that the country was amidst an economic recession.

The obvious question to ask is, “What led to this crisis on Wall Street?”

The short answer is a combination of poor management and regulation of the financial sector, poor banking practices and consumers who fell in the trap of buying on credit.

The free availability of cheap credit everywhere at low interest rates, coupled with the extension of mortgage loans with little or no down payment to virtually anyone who would claim to be able to afford it, and the willingness of companies such as American International Group to insure banks in case home owners defaulted led to a subprime mortgage crisis and consequently, a credit shortage. According to a recent CNBC report (Sept. 19, “What brought the US economy to a brink?”), Wall Street lent out $30 for every dollar it kept on reserve.

Reality caught up. Households, which have not experienced a rise in real wages in over a decade, started defaulting on their home payments in troubling economic times, and Wall Street ran out of cash. A “credit crunch,” or a drastic reduction in the availability of credit, seemed imminent.

Wall Street was seemingly going bankrupt when, in a series of decisive, reactionary and self-proclaimed “bold” moves, the Bush administration stepped in. In the clearest sign that the administration has abandoned the neo-conservative ideological principles that once guided its decision making, the lame-duck “Fantastic Foursome” of Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke, Securities and Exchange Commission Chairman Christopher Cox and President Bush led a massive government bailout. Government-sponsored enterprises Fannie Mae and Freddie Mac are being placed under conservatorship, which involves a treasury department commitment of up to $200 billion in preferred stocks; AIG – America’s largest insurance company – will receive an $85-billion loan in return for 80 percent of the company’s equity stock; and there is a proposed $700-billion plan to buy out bad mortgage debt and unfreeze the country’s credit markets. The bailout comes to a whopping total of approximately one trillion dollars.

To put into context what the magnitude of this move made by Bush and Co. represents, consider that by any measure used by the International Monetary Fund or the World Bank, only 10 to 15 countries in the world have a GDP of over a trillion dollars, the total amount committed to the federal bailout plan.

This financial takeover is huge and its implications are enormous, but regardless of whatever political statements are made in the upcoming days, whether it’s conservatives condemning the government’s intervention in the market or Democrats attacking the administration for using taxpayer money to bail out Wall Street, this bailout was necessary.

Bernanke and Paulson understand that a credit crisis can be potentially devastating for a country and have publicly argued that the alternative, which would be non-action, would be disastrous. It would be similar to the course of action that led – along with the abuse of widely available cheap credit – America to the Great Depression after the stock market crash of 1929. Had these moves not been made, America’s financial sector could have potentially fallen apart.

However, this is only the beginning of the public sector’s involvement in the financial sector. The next step is the hard part. The government must dramatically increase regulation and intervene substantially in order to restructure and bring discipline back to financial markets. Federal agencies will need to prove to the American people that they are more apt to manage these monster enterprises than executive boards of these same companies themselves were, not only because the taxpayers are financing this bailout, but also because there is no other option.

This is a gutsy move that could potentially save the country’s financial sector and somewhat embellish the Bush legacy – if the government lives up to its task and everything works out right. But if this investment becomes an extension of the same financial irresponsibility that led to this debacle, it could prove to be a trillion-dollar mistake.

Julian de Lavalle is a junior in the College.

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