If you listen to our brilliant politicians in Washington, they seem to portray the 1/3 trillion dollars that was spent, last year, as a waste of money. They say that's because, somehow, they expected our economy to have just turned around and, magically, we would be instantly out of the recession.
But, they're missing both the purpose and the effect of what all that original bailout money did. Bottom line... it saved our banking system from collapse. Last year only 26 banks failed and had to be taken over by the Fed. Without the credit bailout and the increases in FDIC insurance coverage, that number could have been at least 10 times, or even a hundred times greater as bank after bank would have failed after having been run on by depositors seeking to withdraw their money. That's what happened in the Great Depression. Let's not forget that the banks were saddled with the cost of covering millions of defaulted home loans which totally reduced their asset values and their ability to raise cash.
Sometimes its what you don't see that is a positive fact. I think this is a true case in point. Sadly, some of our politicians are using the amount of the first bailout to justify spending 3 to 4 times that amount in spending by saying that the bank bailout did nothing. But, it did do something. And, unlike today's spending package, that original banking bailout was specifically targeted. What didn't happen was the secondary belief that banks would start lending again.
Granted, there was a lot of waste in what was done last year. Some now say as much as $78 billion. But anytime there is a necessity to act immediately, this is what happens. To think there won't be waste in this newest and rushed stimulus package is just being naive. There will be waste and a lot of it and that waste will make last year's look like child's play. I need only point to Boston's "Big Dig" project that was supposed to be $2.8 billion (as planned) and wound up costing $22 billion. My guess is that all these shovel-ready projects will turn out much the same way and won't be able to be completed in the 19 month time frame without billions of more dollars in cost overruns being spent and without the typical delays. There's generally two phrases that you never hear associated with any government projects: (1) on time and (2) on budget. I'm not sure, but I think wasteful spending is specified somewhere in our Constitution and it's not exclusive to any one political party. Remember, this is a government that has, in the past, wasted $50,000 for toilet seats and had as much as 10% fraud in their managing of Medicare.
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On this post, I can't disagree more. The TARP money was a total waste and a disgusting fraud in my opinion. It is one of the worst actions President Bush took while in office. It rails against every conservative bone in my body. To say that things would have been much worse without it, is like saying "give me 350 billion and your house will not collapse over night. Then seeing your house standing in the morning, I claim success!! The fact is that these banks made poor decisions getting into all of these fancy things like Credit Default Swaps, and No Doc(Liar Loans). Like elections, business decisions have consequences, or at least they should. Why is it that smaller, regional banks do not have these problems? Its because they were smart enough not to get involved in these schemes. Now these banks have to compete with large banks that are being subsidized by the US government. The end result of all of this spending is going to be to draw out the recession.
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