Ten Things Not to Like About the US Government Policy Actions Known as "The Bailouts"

Thanks to Cafe patron Malcolm McMichael

1. The Treasury and the Fed rewarded some aggressive risk takers and failing business models at the expense of those who followed sound business practices. Those who followed conservative practices have been penalized twice; first on the way up and again on the way down. Those companies that did fail appear to have been 'targeted' by insiders.

2. Much of the process was done in secret with minimal transparency, debate, or disclosure by people who have obvious conflicts of interest.

3. The stated objectives of freeing up credit for the real economy and stemming foreclosures have not been achieved.

4. Trillions in taxpayer money were provided with few strings attached and at minimal stipulated rates of return. Furthermore, several of these institutions are using their taxpayer money to lobby against reform and award themselves pre-crisis salaries and record bonuses.

5. Bailout actions were arbitrary, inconsistent, ad hoc, and without an apparent guiding principles of justice.

6. The banking, rating, “insurance”, and regulatory systems have not been reformed and the perpetrators of the collapse and their enablers are remain in charge, now overseeing the “recovery.”

7. Criminal investigations are minimal; few people are facing indictments or even serious regulatory scrutiny for actions that are highly questionable. Official finds are whitewashes.

8. Regulations, regulatory structures, and other safeguards were implemented, revised or swept aside in chaotic and reckless fashion. [discount window participation and collateral, short selling rules, bank holding companies, mark-to-market]

9. The insider advantages, speculative excess, and extreme leveraging of the perpetrators has been allowed to continue; in fact, allowed to expand. There is a taint of insider trading and corruption that permeates the process.

10. Wall Street is bailed out; Main Street is not. Efforts to subsidize the incomes and balance sheets of failing firms have been massive and were implemented with minimal debate, requirements, or oversight; efforts to shore up taxpayer incomes and balance sheets have been comparatively minimal, subject to extensive debate and tinkering, highly selective, and incomplete.

Market Perspective from the Daily Charts

Even if one does not use technical analysis, it is a good idea to take a look at a chart now and then to maintain one's bearings in a market. It is a natural tendency to get caught up in the short term movements, to be affected by the hype and hysteria from the bulls and the bears, and to lose the bigger picture and the general intermediate trends.

It appears to us that we are seeing a lifting of US equities in response to a government sponsored program of reflation using monetary stimulus and creation.

The dollar is showing a commensurate decline as we might expect, since the increase in equities (and the long end of the curve) is being accomplished through dollar dilution.

Déjà vu?

They can try.

Obama's Economic Policy Has Doomed the US to Stagnation - Or Worse

This was the very moment of Obama's failure, when he allowed Summers, Geithner and Bernanke to establish the principle of "Too Big To Fail" and set up a financial oligarchy at the expense of taxpayers. We would have expected this out of the Treasury under Hank Paulson, but to see this kind of policy error favoring Wall Street over the US taxpayers from a government elected on the promise of reform is inexcusable, a disgrace.

Be Prepared For the Worst - Ron Paul

Bloomberg
Stiglitz Says U.S. Is Paying for Failure to Nationalize Banks

Nov. 2 (Bloomberg) -- Nobel Prize-winning economist Joseph Stiglitz said the world’s biggest economy is suffering because of the U.S. government’s failure to nationalize banks during the financial crisis.

“If we had done the right thing, we would be able to have more influence over the banks,” Stiglitz told reporters at an economic conference in Shanghai Oct 31. “They would be lending and the economy would be stronger.”

Stiglitz has stuck with his view even after the U.S. economy returned to growth in the third quarter and as banks’ share prices climbed this year.

U.S. Treasury Secretary Timothy Geithner, appearing yesterday on NBC’s “Meet the Press” program, said the country’s economic recovery hinges in part on banks taking more risk and restoring the flow of credit to businesses.

“The big risk we face now is that banks are going to overcorrect and not take enough risk,” Geithner said. “We need them to take a chance again on the American economy. That’s going to be important to recovery.”

President Barack Obama said on Oct. 24 that the nation’s lenders, supported by taxpayers in the crisis, need to “fulfill their responsibility” by lending to small businesses still struggling to get credit.

Companies such as Citigroup Inc. and Bank of America Corp. benefited from a $700 billion taxpayer-funded bailout package last year. In contrast, Obama said that too many small businesses are still short of money, adding that his administration will “take every appropriate step” to encourage banks to lend.

Bank Lending

“We have this very strange situation today in America where we have given banks hundreds of billions of dollars and the president has to beg the banks to lend and they refuse,” Stiglitz said. “What we did was the wrong thing. It has weakened the economy and has increased our deficit, making it more difficult for the future.”

While the U.S. economy grew at a 3.5 percent annual rate in the third quarter, the first expansion in more than a year, the Columbia University economist said the recession is “nowhere near” its end, citing rising unemployment and weak demand.

The U.S. government plans to alter the way that a similar rescue would be handled in the future. Draft legislation proposes that banks, hedge funds and other financial firms holding more than $10 billion in assets would pay to rescue companies whose collapse would shake the financial system. (And it is an inherently unfair plan that creates even additional moral hazard by penalizing sound banking by forcing it to pay for reckless bank management. - Jesse)

Citigroup and Bank of America shares have quadrupled from this year’s lows in March.