What the Bailout and Stimulus Are and Are Not
The huge banking bailouts and stimulus bill are meant to counter-balance the huge damage the economy is suffering. The damage caused to the economy, is largely from unwise risks that were allowed by regulators and politicians that have not panned out and are now greatly damaging the economy. It is always easy for politicians to pay out money in an attempt to buy our way out of problems. That is what the stimulus and bailout bills are doing. They are yet again heaping huge debts on our children and grandchildren.
The bailout and stimulus packages are not about preventing foolish risks to the economy by huge banks that would make the economy safer in the future. Those types of bills are very hard to pass as the politicians get great sums of money to allow people to risk the economy for their own benefit. The concept of the stimulus is not to fix the cause of the problem but do cope with the problem we are left with due to people that paid themselves huge amounts of money. Now the taxpayers get to fund the huge payouts wall street has given themselves.
This is because they never actually provided the value they claimed. They merely created false returns to claim they provided a benefit to justify obscene pay (many of them truly didn’t understand this is what they were doing so beyond failing they were so incompetent [while accepting well over a million dollars a year] they didn’t even understand that the financial games they were playing were failing. It is hard to know what is worse, being so incompetent while claiming you deserve millions or knowing you are just paying yourself money based on false claims of value.
Either way, the banks are left bankrupt - having worthless securities created by those paying themselves huge amounts of money. If the huge banks fail the financial system collapse creates huge problems - businesses that have operated for decades by borrowing some funds (responsibly) go bankrupt because no funds are available to lend them, etc..
The stimulus is not about fixing the problems of the past it is about countering the huge decline from the bubble economy. That bubble economy was funded largely by claiming value where none existed thereby allowing people to spend huge amounts of money based on those faulty claims. How people are shocked that playing financial games doesn’t actually make hundreds of billions of dollars appear out of thin air is beyond me.
So now we are left with a problem. Politicians (and their regulators) allowed people paying politicians large sums of money to risk the foundations of the economy. As you would expect those people took imprudent risks and jeopardized the economy. And also, fairly predictably they played games with values they placed on complex securities to justify paying themselves obscene amounts of money. Those false claims about security values can sustain for a period but like a ponzi scheme they eventually collapse.
And then the politicians say that the economy is in a huge mess. Stimulus and bailout must be used to fix it. Later we will fix the problems. Except oh, you know if people pay us some money and make claims about silly Washington should stop us from making money, well then we will just avoid any significant safety measures. Just let the politicians in a few decades explain that well what just happened is very bad and we need to provide trillions in bailouts and stimulus.
The import task of fixing systemic causes of the problems we face now, are likely to be half-hearted, minor attempts that do little to address the problems that created our current mess. Why people accept bills for a trillion dollars from the banking industry and just pay it is amazing to me. How do we not see this is just a huge kickback scheme in reverse. You take huge risks that undoubtedly will fail eventually. Make false claims about the value of securities. Once the whole mess collapses upon itself just fly away in your personal jet, to your castle and act like it is Washington’s problem. Keep paying your politicians and in a few years start the whole thing again. The amazing thing is the electorate keeps letting them get away with it.
Related: Executives Plundering Corporate Coffers - Leverage, Complex Deals and Mania - More on Failed Executives - Our Capacity Remains Undiminished - Sound Canadian Banking System - Too Big to Fail - Lobbyists Keep Tax Off Billion Dollar Private Equities Deals and On For Our Grandchildren