At the time I was of the opininion that it was necessary. They told us essentially that the ATM's, debit cards and credit cards would haves stopped runnning and we would have chaos. That would have hurt millions of people and have made the economic effects of 911 or the market crashof 1989 etc. look like an ordinary day on the markets. Granted I was for bailing out the banks with very strict conditions, at least as tough as what was demanded of GM, replacing many of the CEO's, the government getting major voting stock, resurrecting Glass Seagal etc. But still, was the bailout necessary or were we sold a lie? In retrospect after the panic was it necessary or should we have just let them "fail"?
It was necessary to protect people's 401ks from going completely into dust.... I think it was mishandled though, they should have given the money to the people as a way to pay down their mortgages, that way the banks would ge the money and the people would keep their houses. DD
A bail out was necessary, but not to wall street. It was a fleecing, perhaps the greatest in human history, and both parties were in on it.
Also I think there should have been a lot more strings attached. The US government slapped all sorts of rules on the auto makers when they bailed them out. The whole leadership got canned at the auto companies and the government forced them to review a lot of their own internal practices. Most of these banks are humming along like nothing happened. We just handed them a pile of money and didn't ask for much in return. The scary thing is that the version of TARP that passed was a revised version that actually added some conditions. The original version by Secretary Paulson that was voted down (mainly due to a combination of democrats and some republicans) had no strings whatsoever. It didn't even properly specify interest payments on the loans. Consequently our biggest problem was having someone like Paulson (and now Geithner) running the treasury department. We need to stop hiring Goldman Sachs stooges.
No the bailout was not necessary. In fact, I think the bailout hurt the economy in the long run. It would have hurt a lot more in the short run for the US economically, but the whole system would have come back much stronger. Bad banks needed to fail, not propped up by the government.
The problem was it would have sent the country into a depression and all those pensions and people's retirement funds would have gone to 0.... DD
This was and is all true. We saw the beginning of the freezing of credit markets - it wasn't just a hypothetical thing. We've seen what happens to the world when there are concerns about a tiny country like Greece - there's no question if the US banks collapsed, there would have been utter chaos. What has changed to make anyone think otherwise?
Why? Those banks got funds, fixed themselves, paid back the funds with high interest. The bailout cost nothing and prevented a huge depression. Even in the worst case scenario that they fail again, we only end up in the same scenario we would have been in several years back. In what world is that a bad thing, when the worst case today is no worse than the guaranteed case without a bailout?
Iceland Loses Its Banks, Finds Its Wealth The most important question about Iceland these days (after “How come Iceland is green and Greenland is icy?”) is what we can learn from its economic recovery. In 2008, the tiny island nation in the North Atlantic became a byword for both boom-time excess and recessionary disaster. After inflating its financial service sector with a pile of foreign-currency debt and risky combinations of short-term debt instruments with long-term loans, Iceland, which is not a member of the European Union, endured one of the most unpleasant recessions in recent memory. The country’s three largest banks, whose total assets were 11 times larger than Iceland’s GDP, proved too big to fail and then too big to rescue, bankrupting the central bank that took them over and leaving foreign creditors empty-handed. Inflation in the import-heavy economy reached 18 percent, while the stock market plunged by 90 percent. Between 2007 and 2009, according to the World Bank, GDP dropped by 40 percent. The Icelandic króna turned into a pariah currency, and even the country’s durable fishing and aluminum businesses were crippled by heavy leverage. A collapse of this size needs a villain, and it will surprise nobody to learn that libertarians, who exert an iron grip on political and economic practice throughout the world, took the blame. In a 2008 story for Fortune, Peter Gumble blamed deregulation and putatively free market reforms for destroying the banking system. New York Times economic poetaster Paul Krugman said the small nation had been “hijacked by a combination of free-market ideology and crony capitalism.” Huffington Post columnist Iris Erlingsdottir blamed the late Milton Friedman (who had once praised 10th-century Iceland’s approach to government) for failing to “take into account the predictably irrational character of human nature,” and concluded, “It is time for the grownups to take over again.” As always, we had to look to the legendary Icelandic songstress Björk for real wisdom. In a London Times essay blasting the country’s ruling conservatives, Björk lamented the way the boom/bust cycle had wiped out small entrepreneurs as big money pursued an oversupply of aluminum smelters—which was not an excrescence of the free market but a product of public industrial policy. Former Reykjavik mayor and Prime Minister Davíð Oddsson did indeed pepper his tenure as head of Iceland’s central bank with free market rhetoric. But that’s about as far as it went. In their new study of the crisis, Deep Freeze: Iceland’s Economic Collapse, economists Philipp Bagus and David Howden illustrate how thoroughly Iceland’s financial boom combined a Scandinavian nanny state—which consumes 41.1 percent of GDP and features unemployment insurance that provides three years of benefits—with the worst practices of boom-happy central bankers and government agencies everywhere. For every government-driven bad improvement you can find in the west, you’ll find boom-era Iceland taking it to the next level. Where the U.S. Federal Reserve’s promise to backstop financial institutions was merely implicit, the Central Bank of Iceland in 2001 gave an explicit guarantee to big banks, making it inevitable that they would become bloated with risky and ultimately toxic assets. Our own government-sponsored—and as of 2008, government-owned—entities Fannie Mae and Freddie Mac made a hash of responsible lending by buying mortgages in the secondary market (and as we now know, lying about the poor quality of debt on their books). But Iceland’s government-run Housing Financing Fund managed to do even worse, lending directly to borrowers and competing with private lenders on both interest rates and loan quality. By mid-decade 90 percent of Icelandic households had government loans, and no-money-down home purchases were as common in Iceland as they were in Florida. When the predictable emergency hit, neither the government nor the private financial institutions had cash to redeem the large number of foreign-denominated loans. While the International Monetary Fund eventually cobbled together a small bailout package, for the most part Iceland was alone. U.K. Prime Minister Gordon Brown invoked anti-terrorism legislation against the charter member of NATO, trying to force Icelandic banks to repay British lenders. Russia promised a bailout but failed to deliver. The E.U. was, and remains, too preoccupied with its own profligate states to give attention to remote Iceland. This international neglect turned out to be Iceland’s saving grace. The crisis ended almost as quickly as it had begun. The Organization for Economic Co-operation and Development expects Iceland’s economy to grow by 2 percent this year and next. That’s not enough to replace the post-2007 loss, but it’s more than enough to return to the pre-boom trend line, and it’s much stronger than the performance of Portugal, Italy, Ireland, Greece, and Spain, affectionately know as the PIIGS economies. Iceland’s long-term interest rate, a not-inconsiderable 8 percent, compares well with a rate of over 13 percent for Greece, which is astounding when you consider that Iceland endured a default that Greece, in name at least, has so far avoided. The difference in unemployment—5.8 percent for Iceland against 16 percent for Greece—is even more striking. Iceland expects to have a balanced budget in 2013. Paul Krugman naturally draws the wrong conclusion, contending that Iceland saved itself through rapid inflation and capital controls. This is like saying the March tsunami gave the people of Tohoku a nice chance to go swimming: Iceland’s central bank tried desperately to control the króna’s collapse before giving up. Nevertheless, Erlingsdottir is right: The “grownups”—a center-left coalition led by Social Democrat Johanna Sigurdardottir—are back in charge and have done their best to double down on the bad policies of the past, including reducing fish quotas when local fishermen most need to be producing and selling. The government is also, in the face of strong popular opposition, moving toward E.U. membership, which has worked out so beautifully for other troubled European economies. So what’s causing the recovery? The plain-sight answer is the one nobody will consider. Iceland is coming back specifically because its banks went out of business. That happened in spite of strenuous public efforts, but the removal of the tiny nation’s colossally bloated financial sector turns out not to have eliminated all that much value. It bears repeating that banks are not creators of wealth. They are places where you store the surplus value generated by productive enterprise. In very narrow circumstances that surplus value can be loaned out at a profit, but a financial sector is the icing, not the cake. This should be common sense, but apparently it is wisdom so rare it can only be learned in countries small and remote enough to avoid the deadly medicine of the global financial markets.
That's a fascinating look at Iceland. 40% loss of GDP followed by 2% growth is considered a good thing? And, of course, it ignores that Iceland was actually still bailed out by European countries and then refused to pay that money back. So yes, if you think crushing the US economy and then hoping the rest of the world finds trillions of dollars to bail us out and then we just say "we're not going to pay you back" only to generate 2% annual growth (what we have now, by the way - without the 40% initial GDP destruction) is a good strategy, by all means, follow the Iceland model.
We got most of the bank bailout money back. It prevented world economic disaster. TARP was the best thing Bush did.
I resent the way it was done, the way it was hammered down our throats, the way it was presented as so urgent that no controls or regs could be included. It was necessary, but it certainly wasn't the best way to do it.
You can never say, because there is no way to evaluate the result of alternative actions. You take your best analysis at the time to avoid the worst case and act. Examine every bit of the execution for efficiency, look for any fraud and file charges, run models with the new information to learn what you can for next time, but second guessing is a waste of everyone's time and a distraction. It bears repeating that banks are not creators of wealth. and whoever wrote that is an idiot.
this x10000. no question about it. i hate that we have to do it...but we have to do it. simply can not afford to have the US banking industry up and die. been there, done that.
Yeah agree and couldn't believe there was hesitation to do it. Of course equally or more disturbing is that very little has been done to prevent this from having to happen again - perhaps other than the outrage over it might give some banks pause that next time they may not get bailed out - nah, who are we kidding, greed wins!
The only reason why the bailouts were a disaster were because Main Street didn't make clear the price for the bailouts---regulatory overhaul, significant jail time for banker crooks, overhaul of the system of incentives that led to so much moral hazard in the first place etc. Instead, we got a watered down Glass-Stegall that's largely being written by bank-influenced groups, and probably will be repealed if the idiots and the bought (Wall Street's new money boy Romney) have their way. The Germans got their executives to return their (ha) 800,000 euro salaries. Meanwhile, John Paulson made the equivalent of a small country's GDP through deceit, and Cassano left with $300 million for burning AIG to the ground. So now we have a system that is more or less the same rigged crap, except now the implicit backing of the Treasury has been made explicit. woo hoo.
They have not "fixed themselves" and are still playing Russian roulette with derivitaves on our dime. No idea if it would have been better to let them fail (you like, like the way capitalism is supposed to work).
They fixed themselves from the immediate problem. They are also less leveraged today than they were then, so if they were to fail today, the damage would be less, though still catastrophic. In what way MIGHT it have been better to let them fail?
