The Issue: Government Bailout
|
THE ISSUEOne by one in the latter half of 2008 the dominoes began to fall. Fannie Mae, Freddie Mac, Merrill Lynch, American International Group and Bear Stearns - all venerable U.S. institutions - were either failing, on the verge of bankruptcy or in the process of being nationalized. By September it became readily apparent that the U.S. and the world financial markets were on the verge of collapse. Fearing a replay of the Great Depression, the government jumped into action in the form of the Emergency Economic Stabilization Act of 2008, or more commonly known as the $700 billion bailout or the Paulson Plan, designed to revitalize the financial markets by buying up toxic, illiquid assets that had been a drain on the books of companies since the housing bubble burst and the fallacies of subprime mortgages were exposed.  The plan was originally proposed by the Bush administration with the guidance and approval of Treasury Secretary Henry Paulson. Sent to Congress as a three-page proposal, the bill quickly turned into a 110-page piece of legislation. On Sept. 29, the bill was axed by a margin of 228-205 in the House of Representatives, with the opposition led largely by conservative Republicans. On Oct. 1, the Senate took up the bill, adding 441 pages and roughly $150 billion in pork to the legislation, but ultimately passing it with by a vote of 74-25. Two days later the House enacted the amended version 263-171 and President Bush signed the bill into law soon afterwards. The debate over the bill was often contentious and, as a consequence of occurring during a presidential campaign, always political. Both major presidential candidates expressed their support for the bailout bill, but were unable to avoid partisan bickering about the minutiae. There were suspended campaigns, high-level White House meetings, behind-the-scenes arm-twisting and an endless amount of spin and accusations by both parties, but in the end the presence of the two presidential candidates seemed to prove more distracting and divisive than helpful. Another factor contributing to the difficulty in passing the bill was the overwhelming public opposition to the bailout. Many Americans felt that the plan was nothing more than a handout of taxpayer dollars to poorly run Wall Street businesses. A Pew Research poll conducted Sept. 19-22 found that 57 percent of those surveyed believed that the government should not rescue struggling Wall Street firms, while just 37 percent believed it was the right thing to do. In addition, many legislators reported receiving overwhelming constituent communication voicing opposition to the bill. Sen. Sherrod Brown (D-OH) said he received roughly 2,000 letters, emails or phone calls per day pertaining to the bailout, 95 percent of which were negative.  Americans also continue to express concern that Paulson’s role in the bailout presents a conflict of interest, as a former CEO of Goldman Sachs, Paulson stands to benefit from the bailout. In the same vane, Neel Kaskari, a former vice-president at Goldman Sachs was instated as the treasury staff member responsible for administering the bailout funds. After its passage, the bill gave Paulson authority to pump $700 billion into the economy through the Troubled Asset Relief Program, or TARP. TARP allows the federal government to take equity stakes in participating firms, provides the government tools to modify mortgages and slow the steady stream of foreclosures and requires participating companies to offer compensation incentives that do not encourage risk taking. While Paulson sold TARP as a means of eliminating bank balance sheets of illiquid mortgage assets, his actions prior to the bailout are more telling than the words he bestowed on the American public. Before the bailout was set in gear Paulson had already begun injecting capital into the banks. It should come as little surprise that on November 12, Paulson stated he no longer intends to buy the toxic mortgage assets at the heart of the credit crisis. With little incentive for the banks to lend the money they receive from the bailout, increased oversight needs to be factored in. Banks taking capital need to be required to increase lending rather than using the money to finance takeovers. Yet no formal action has been taken to fill the independent oversight posts established by Congress to prevent corruption when it approved the bailout. The initial monitoring report required by lawmakers still has not been completed, and the initial deadline has long since passed.  Eric M. Thorson, the Treasury Department’s inspector general working to oversee the bailout program, stated in the Washington Post that "no one understands how they are going to accomplish proper oversight of the bailout.” While our tax dollars are hanging in limbo, Americans stand to inherit massive debt from the elusive bailout. Each American will be responsible for paying $2,295 (based on an estimate of 305 million Americans), or $4,635 per working American (based on an estimate of 151 million Americans in the workforce). WHAT THEY ARE SAYING"The Paulson plan will not bring a stop to the slide in home prices. But the Paulson plan will spend 700 billion taxpayer dollars to prop up and clean up the balance sheets of Wall Street. This massive bailout is not a solution. It is financial socialism and it's un-American." "This plan is stunning in its scope and lack of detail. It does nothing in my view to help a single family save a home." REFERENCESPaulson Shifts Focus of Rescue to Consumer Lending |
LIST OF RELATED ARTICLES
U.S. Explores Selling off Citi StockTuesday, September 15, 2009
Bailed out banking giant Citigroup is currently in discussions with the Treasury Department about how the government can rid itself of its large stake in the company without severely impacting the bank's business.
Geithner Defends Actions at Town Hall MeetingFriday, September 11, 2009
During the nearly 60 minute town hall-style meeting that featured questions from the audience, Geithner frequently defended the government’s actions taken to save the financial system from collapse.
TARP Watchdog: No TransparencyTuesday, July 21, 2009
"In short, the taxpayers now have a $700 billion spending program that's being run under the philosophy of 'don't ask, don't tell,' " Rep. Ed Towns (D-NY) said.
Stimulus Raises Questions, Another on the Way?Tuesday, July 07, 2009
While economic conditions continue to deteriorate with unemployment nearly in double-digits, the Obama administration is actively looking to tamp down expectations for its $787 billion stimulus.
Obama Administration Set to Unveil Sweeping Financial ReformsWednesday, June 17, 2009
The government would for the first time seek the authority to preemptively dismantle large financial firms that fall into trouble and pose systemic risks to the economy.
The Call to End TARPTuesday, June 16, 2009
Two lawmakers have introduced legislation that would limit the size and scope of future government bailouts while also winding down TARP.
Stimulus Projects Sidestepping Floundering StatesFriday, May 29, 2009
In fact, some of the states hit hardest by the recession have seen virtually nothing - or in some cases, they have not received a dime.
How Much Could the Government Lose on TARP?Wednesday, April 22, 2009
TARP has yielded a net loss of $104 billion thus far.
Top TARP Cop Launching InvestigationsTuesday, April 21, 2009
Investigations are under way involving possible waste, fraud and abuse..
Fannie Mae CEO May Run TARPTuesday, April 14, 2009
The Obama administration is reportedly on the verge of naming current Fannie Mae CEO Herb Allison to oversee the Troubled Asset Relief Program.
The Stock Market: Paper Gains, Real Losses
|
