Where is the Bailout Money Going?
by Efin Advisor | October 29, 2008
The $700 billion dollar federal bailout plan is revolutionary in size and scope, including the involvement of the federal government in the banking system as preferred, albeit non-voting, shareholders. Many have been fearful that a mismanaged cash infusion would line the pockets of well-off bankers rather than benefit the financial well-being of the average American on “Main Street.”
According to a recent New York Times article, the additional funds are, thus far, not being used to foster increased lending but, in large measure, to buy up other banks. JP Morgan Chase is a case in point, receiving $25 billion dollars from the Treasury and using the funds to acquire smaller, ailing banks.
Such activity is not only being condoned by the U.S. Treasury, but actually encouraged. Treasury Secretary Paulson, among others, has promulgated tax code that allows the costs of mergers to be tax deductible, so taxpayers are footing the bill for large banks to pursue acquisitions, a macroeconomic benefit with far less obvious benefit to the average citizen.
Critics and cynics are given to wonder whether fewer banks are an asset or a liability for the US economy? Or is a consolidation of smaller, insolvent banks a smarter solution than simply buying up toxic loans and assets? If America behaved like England in this crisis, conditions of the bailout would require that any money given to banks be applied towards loans. Without these sorts of guarantees, will people lose faith in an economy that is doing poorly? We invite your discussion.
I can not believe that the government is allowing this to happen. We are now giving the banks who mismanaged our money in the first place, the power to create monopolies. While they buy up smaller banks to “help the problem” we are ignoring the fact that they are just looking out for their own profits and their own self interest- the same thing that they were doing when we got into this crisis. I am no expert in economic policies, but I would like to think that our government did not just GIVE AWAY SEVEN HUNDRED BILLION DOLLARS. It is absolutely astonishing that they would not build in any safeguards, or give any direction about how the money is spent. I think that we should ask for our money back.
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I think that this is just another nail in the coffin for trickle down economics. If we give big companies money, they will spend it on making more money. It is ridiculous to think that we can count on some charitable instinct from these companies to stimulate our economy, especially when people don’t have any money to spend themselves. When are we going to realize that giving large sums of money away with no caveats is a waste. We should have printed out every single one of the $700 B on one dollar bills, and used half of them as insulation for people who cant afford to repair their homes anymore, and burned the other half so that the people who lost their homes can keep warm.
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Why do people think this is a bad thing? JP Morgan is doing a public service by acquiring small banks and helping them to stay afloat so people’s money will be safe. It was proposed that the government would take over these banks and people cried foul. So now private enterprise is helping them out, and people are still not happy? What do you people want, for these banks to die? I’m sure large portions of the bailout money will be used for other things as well, but buying up smaller, failing banks is good for both those small banks and the larger firms who are doing the buying. There is literally no negative economic fallout from this, so what’s the problem?
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This is clearly ridiculous. We should stop paying these banks immediately if they do not start spending it entirely on loans. The Brits have the right idea; lets require all the money that the banks are given to go to freeing up loans. Unless we do this, we just wasted 700 billion dollars which is patently absurd. The government is just confirming all my suspicions. No wonder people do not have faith in the economy, all the money we are funneling in is going no where.
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I actually do not think this is a terrible policy, unlike the other people who have posted. If banks can buy up other banks, we can have more effecient control of the market as well as companies acting with more information when they make their decisions (which will make them able to act more effectively). They are also buying up bad mortgages for the governement except without placing that bad debt in the american people’s hands. We should encourage more bank mergers
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I don’t see this as all bad. Sure, I would rather see some loan relief etc, but If all of the smaller banks go under- we will be in a worse situation than we were before. I think this shows some real responsibility from the financial giants, they are stepping in and making sure that the little guys are protected, and will not fail, taking everyone’s money with them. Any money which you have in your bank is guaranteed by the federal government up to $100K. If lots of small banks go under, the government would be obligated to shell out all of the money lost by individual people. Either way, average people are covered in terms of their savings being protected, but now, instead of the government having to skyrocket the deficit again, the first bailout can do double duty.
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Typical government wasting money when Americans need it most. They should have made these companies get to the end of a LOT of strings before they could even sniff the carrot given to them by the government. This money should have come with detailed instructions, restrictions, and limitations. Instead they’ve been given carte blanche to spend this money on new, risky endeavors that could further damage the market and are designed only to make the individual company more money in the short run. It’s like having a kid stick a pin in a light socket, get electrocuted, then have the parent give him a paperclip and watch the kid do it again. Both parties are at fault, but the parent deserves condemnation for feeding those impulses again without the proper guidance.
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I don’t care about this either way. The government gave these companies free money. Why should we expect those companies to do anything but try to make more money for themselves? Isn’t the whole point of economics that people act in their self-interest? We can’t expect these companies to be charities. If we wanted to control what they were doing, the government could have taken over the companies and run the day-to-day operations of them. They didn’t, and instead chose to give them lots of money, so that’s that. In the last economic stimulus, how many of you actually stimulated the economy with your money instead of hoarding it in your own self-interest? Yeah, that’s what I thought.
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Just another example of the failures of the Bush administration. Paulson, Bush’s appointee, is behind all this. Think a real economist would have been able to handle this situation better? I do. This is why we need a Democrat in office. No Democrat would ever condone a big corporation screwing the rest of America by plunging its money into self-serving business ventures instead of improving its own stability and security. The Republicans have just committed another in a long line of very public screwups, and who’s going to pay for it? Their precious “Joe the Plumber” and every other hardworking American. Bunch of hypocrites.
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I’ve stopped being surprised by any of this. As long as we trust the government the government will respond by screwing everyone over. WE keep supporting the same crooked politicians who only care about winning reelection and do not care about americans. We need to elect Ron Paul. He’s the only person who would actually cut this spending. The only government that you can trust is one that does not have your money.
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At least in England they know how to manage money. How did we not all see this coming? We realize the government has failed to properly regulate an industry and then just give them money hoping they would regulate how the money is spent? Americans are sheep. We should not have given Wall Street all this money. We should have kept it for ourselves. We know how to invest it better and can invest it in the businesses we want to survive. These banks do not deserve to survive this crisis: they spend and screw up and then we give them more money and they screw up again.
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This is why I’m a libertarian. When the government does something, they screw up and do it poorly. We need to keep the money for ourselves. If we give the government money, they inevitably screw up and ruin things. The US government is easily the least efficient body in the world and yet we continually trust it. Americans, we need to end this and work towards freeing ourselves from a system that always screws up.
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I was sure that we had put some restrictions on the bailout. Why on earth are we allowing these companies to take our money and create a monopoly. If we won’t allow companies to do this on their own, why are we subsidizing it and giving tax breaks for it? I think that we should all demand the government step in and recover our money. These companies are just mishandling their assets exactly in the same way that they were before our economy crashed and they had to be bailed out. I would have liked a little responsibility with our tax dollars, but I guess it was too much to expect.
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Having fewer banks is clearly an asset to our economy. If we have too many banks, it means there are more opportunities for those banks to screw up and ruin things for the rest. If there are only a few banks, it allows them to panic less and control more of the market so they can make more levelheaded decisions without worrying about having to compete with 5000 other companies. In a perfect world, all these banks would be able to coexist flawlessly, but we don’t live in that world and so we need to consolidate financial power as best we can
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I’m confused. Why did everyone trust Paulson after everyone agreed that his and Bush’s policies ruined the economy to begin with? When did the american people just accept whatever leaders say? I also partially blame the media for not criticizing the policies more and not asking more questions. Most people do not understand the complex economic issues at play and we need more people giving us a reasonable critique of policies before we just give away 700 billion dollars.
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Question. Can we add in more controls to the bailout bill or is it too late for that. I realize we cannot put condition on money that has already been given out, but could we now put conditions on money that we give out in the future?
Would this be an amendment to the bill or a new bill itself. I feel like it could pass pretty easily so it probably makes sense for people to lobby their congressmen about this. Otherwise we really have no chance of fixing this problem.
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Having fewer banks puts our economy in an even more unstable situation. If there are not a whole bunch of small banks who can compete with each other, but instead only a few banking giants, the system becomes much more susceptible to any problems which might occur. If there are many banking institutions, any issue can be compartmentalized, and dealt with before it spreads to the whole system. I think that we need to make sure that the mega banks are broken up into separate banks after the economic crisis is over. I’m no expert, but if the banks become too large they may violate anti-trust laws, and the government could actually step in to solve the problem.
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I respect the decision of these companies to buy the banks. They are the ones who are experts on the economy, not the congress. Although it may seem like a bit of an issue, overall it is probably better for the economy to trust the world class economists who work on wall street to do what is best for the economy. Their jobs and livelihoods are on the line here, just like everybody else’s. For now we should do everything we can to make sure that they are supported in their efforts to re-stabilize our economy.
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Why are we allowing this to happen. Do we not have any sort of system of accountability for our money? The bailout was supposed to support the failing loans so that average people could be helped in this time of crisis, but instead I guess we have settled for helping banks instead of directly helping people. Does anyone know if the congress id doing anything to counter this problem? I hope that they are.
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Stephen: CEOs of companies may be experts on the economy, but they’re still only out to make money for themselves, not help the economy. They don’t care about stabilizing the economy, they just care about stabilizing their own income and they don’t care what happens to everyone else. If they can buy these banks, it provides them with a safety net for their own companies. However, it still punches everyone else in the gut, especially if that whole umbrella of banks now goes under because one company mismanaged them. Acquisition of power does not help the economy, it only hurts it. More companies creates competition and that’s what we need.
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I am this close to not even filling out my taxes next year. I can’t believe people on this blog could possibly condone this type of government spending with my money! We live in a democracy, and we have a government of the people. That means the people’s money should go where the people want it, not where government bureaucrats or fat cat CEOs decide to spend it. Any company executive who spends money on things like this should be locked up for stealing America’s money and we should throw away the key. It was this kind of spending that got us into this mess and it’ll be this kind of spending that’ll get us into it even deeper.
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I think this will not be a problem for much longer. I believe that we put regulations on how much money could be given out in a certain period of time. This will prevent Paulson from giving away too much in the next 3 months. This means that there will still be a lot of money for Obama’s Secretary of Treasury to give out. I think Obama will be very unlikely to give money to banks so they can buy other banks and will likely put the regulations in place that most of us have called for. The way we do business in America is about to change, and probably for the better.
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I hope Obama makes the sorts of institutional changes he’s been promising so that this stuff stops for good. We elected him because we trust him to be as tough on business as Teddy Roosevelt was a century ago, and I believe we deserve to have him keep his word. If it turns out he’ll be in the pockets of these companies, then we are all in huge trouble. But I think he will do the right thing and put more restrictions on the assistance we give to these companies, because giving them this free reign is just not the way to go about doing things.
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I have actually heard that, the $700 B going toward the bailout could actually be split up between all the legal and registered voters giving each one of them $300,000 each. that in its self would solve all our problems people could then afford to pay off debts and loans and buy new stuff A.K.A new cars which would definately get the car companies and the banks out of trouble.
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