The Bailout

Quoting Electoral Vote:

House Republicans voted down the first bailout bill because they were afraid it would become just another government boondoggle. But after it was loaded up with more pork than all the pigs in Iowa, they changed their minds. Guess what? It has become just another government boondoggle. Sec. Henry Paulson’s idea was to buy up all the toxic mortgages to get them off the banks’ books. He long since shelved that plan. His next idea was to buy stock in the banks so they would have fresh capital and could start making loans again. However, instead of making loans, some banks are using the money to pay dividends, give executives bonuses, and buy other banks. For example, PNC Financial Services received $7.7 billion in government money and promptly spent $5.6 billion of it to buy National City Corp. Lawmakers are protesting but they should hardly be surprised since they gave Paulson unlimited authority to spend the money any way he wanted to, with hardly any supervision and no restrictions on what the recipients did with the money. In addition, Paulson hired the Bank of New York Mellon to run the program. On the same day Bank of New York Mellon received $3 billion itself, apparently deciding that it could use some cash. Hardly anyone noticed.

Pretty much everyone seemed to think the bailout package was a bad idea, and then it seems like pretty much everyone in Washington ended up voting for it. But have we learned nothing about the need for oversight, especially when handing companies billions of dollars?

2 thoughts on “The Bailout

  1. Everyone IN THE GOVERNMENT thought the bailout was a bad idea. My brother works for a hedge fund (he won’t let you forget it). From his perspective, the bailout was too little, too late. That week delay in the bailout due to it being shot down the first time is the reason we’re seeing such a heavy economic DEPRESSION right now. If the bailout had gone through the first time it was up for voting, the market wouldn’t have suffered such a huge blow. It’s like someone being shot with a gun, and deciding whether to apply gauze or to do stiches, and in the meantime, the victim (the economy) constantly losing blood. And we waited and spent a week deciding what to do and expect it to make a full recovery instantly.

    Basically, the loss of blood (continuing with this analogy), caused the kidneys and liver to fail (probably not possible, but go with it). So now we don’t need to worry about just the blood loss, we also need to worry about the kidneys and liver fixing themselves. Kidneys and livers (not 100% sure here, I’m not the hedge fund guy) are the securities markets and money markets.

  2. But to continue the analogy, it would be like if we had thousands of people who had lost lots of blood, and the government decided to put some people who had lost blood in charge of distributing blood. And then we’re shocked when those people take care of themselves first.

    Even worse, though, the people who were losing blood have gotten their emergency shipments of blood, and gone and sold that blood for a profit instead of using it to fix their ailing kidneys and livers.

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