When Throwing Money Doesn't Work

[ysabetwordsmith]

Here are some articles about the Failout and its successors.

Former Fed Chief Says US Now in Recession
Reuters: "Former Federal Reserve Chairman Paul Volcker said on Tuesday the U.S. housing sector faced more losses and the economy was in recession even as authorities moved to stabilize the financial system. Volcker said the priority for U.S. authorities in the credit crisis was to stabilize the financial system even though that meant heavy government intrusion."

Oh, look, there goes a clue! I wonder if the government will manage to catch it before it wanders leisurely out of the building.

Norman Solomon | Requiem for the Bailout Storyline
Norman Solomon, Truthout: "It's mid-October, and the Wall Street bailout that was supposed to save the economy from collapse is a flop. Only two weeks ago, the media hype behind the $700 billion bailout was so intense that it sometimes verged on hysteria. More recent events should not be allowed to obscure the reality that the news media played a pivotal role in stampeding the country into a bailout that was unwise and unjust."

Granted, the media behaved badly. I just don't think it had any effect. The American populace hated the Failout from the beginning. It was the politicians who wanted it, because the rich people and corporations wanted it. So the politicians voted it through despite the massive outcry from We The People. They even cut off communications for a while so they wouldn't have to listen to the howling. And of course the Failout has utterly failed to ease the recession, since it didn't address the root causes. I told you so.

US Investing $250 Billion in Banks
Mark Landler, The New York Times: "The Treasury Department, in its boldest move yet, is expected to announce a plan on Tuesday to invest up to $250 billion in banks, according to officials. The United States is also expected to guarantee new debt issued by banks for three years - a measure meant to encourage the banks to resume lending to one another and to customers, officials said. And the Federal Deposit Insurance Corporation will offer an unlimited guarantee on bank deposits in accounts that do not bear interest - typically those of businesses - bringing the United States in line with several European countries, which have adopted such blanket guarantees."

With the Failout a failure, the government is looking for more ways to address the financial crisis. I'm dubious that throwing more money at the problem will solve it, given that a) the Failout didn't, and b) the money is vaporware instead of hard cash due to the deficit.

Obama Details Plan to Aid Victims of Fiscal Crisis
Jackie Calmes and Jeff Zeleny, The New York Times: "Senator Barack Obama proposed new steps on Monday to address the economic crisis, calling for temporary but costly new programs to help employers, automakers, homeowners, the unemployed, and state and local governments. In an address here, Mr. Obama, the Democratic presidential nominee, proposed giving employers a $3,000 tax credit for each new hire to encourage job creation. He said he would seek to allow Americans of all ages to borrow from retirement savings without a tax penalty; to eliminate income taxes on unemployment benefits; and to double, to $50 billion, the government's loan guarantees for automakers."

This is better than the Failout, but still not very good. A one-time payment to create jobs won't make those jobs affordable for the employer. Borrowing from retirement funds is a disaster -- many people aren't able to save enough for retirement to keep themselves above the poverty line, and using it before then just makes matters worse.

Tom Engelhardt | My Depression - or Ours?
Tom Engelhardt, TomDispatch.com: "Among my somewhat over-the-hill crowd - I'm 64 - there's one thing friends have said to me repeatedly since the stock market started to tumble, the global economic system began to melt down, and Iceland went from bank haven to bankrupt. They say, 'I'm just not looking. I don't want to know.' And they're not referring to the world situation, they're talking about their pension plans, or 401(k)s, or IRAs, or whatever they put their money into, so much of which is melting away in plain sight even as Iceland freezes up.... The point is: Why look? The news is going to be worse than you think, and it's way too late anyway. This is what crosses your mind when the ground under you starts to crumble. Don't look, not yet, not when the life you know, the one you took for granted, is vanishing, and there isn't a damn thing you can do about it."䙏

Plus, bear in mind that America doesn't really encourage saving for retirement, but rather gambling for retirement. It's entirely possible to lose everything, and not rare to lose so much that people can't afford to retire at all. That's not an effective plan.

Comments

[(Anonymous)]

let our tax dollars work
for their corporate handlers,
feed the bear market

[carolf.livejournal.com]

I'm afraid I must disagree with some things here.

Yes, constituents overwhelmingly decried the Bailout (which is a bad name, actually. It's not a bailout), which is why the first House vote failed (thank Ghod -- it was an awful bill.) Then the Down lost 777 points, and those same constituents overwhelmingly told their representatives to DO something. That's when it passed.

IMO, the main reason that the bailout isn't working yet is that Paulson didn't go far enough. Brown, in England, did something very similar, remember. However, the strings attached to the government money included a requirement for the receiving banks to increase their loan levels back up to a certain mark.

That was to keep the banks from merely taking the money and either holding their reserves or paying out to shareholders.

In the US, banks are holding on to that money. So nothing is happening.

The bailout (I really hate that term) was not to save the banks, per se. Nor did it have anything to do with the mortgage crisis, at least directly.

The bailout was specifically designed to get commercial paper moving again. Without commercial paper, not only banks close, but most small business and not a few large business also.

As bad as the mortgage crisis is, and as urgent as it is, there won't be an economy to fix if commercial paper doesn't start moving, soon.

I have my own ideas about what should be next. But that's different post.