Government, Quit Using My Money To Bailout Companies!

In: Updates| Wealth By: Brian Armstrong

29 Sep 2008

I don’t know about you but I’m pretty glad the House rejected the government’s $700 billion dollar bailout….at least for now.

The Fed needs to focus on it’s job of controlling the money supply and inflation and stop using OUR money to bail out failed companies.

$700 billion is a lot of money. Do you realize there are only about 300 million people in the U.S.? I’m just guessing but maybe 200 million of those are 18 years or older and pay taxes.

700 billion divided by 200 million = $3,500 per tax payer.

You can Google it if your calculator doesn’t have enough digits.

I’ve never had anything to do with Lehman Brothers, personally I’d rather keep my $3,500. It’s not like their customers will be left out in the cold. Someone will come along and buy them up on the cheap. It will be too good of a deal not too. Lehman will be screwed (and they deserve it, they took the risks) but the economy as a whole will end up fine. After all, people still needing banking services, and someone will be there to provide it.

What do you think, do you mind the government using $3,500 of your money to bail out some executives who made bad decisions?

14 Responses

Barry Gitarts

September 29th, 2008 at 9:14 pm

Well technically they are not bailing any one party out, they are buying distressed assets on the cheap. The government is the only party that can scrap together such funds and has the time to ride it out. Warren Buffet said he would do it if he had access to such capital. So while it will be an investment of $3.5k per tax payer, it should ended generating a profit of about 5-7% per year. This is not including the benefits of stimulating the economy now rather then later which should lead to higher tax receipts as well from an increase in GDP.

Brian Armstrong

September 30th, 2008 at 2:27 pm

Hi Barry, you’re right but are you saying the government is going to be paying back 5-7% ROI to investors? Even so, why should they decide where to invest our money.

I think it would benefit the economy more to let each individual decide where to invest their own $3,500, instead of a panel of “experts” deciding for us.

People never spend someone else’s money as carefully as they spend their own.
B

Alex Hansford

September 30th, 2008 at 2:37 am

I have to say I disagree with you on this one Brian.

Although it’s easy to see this bailout as nothing more than increased taxes – the problem is that whilst confidence in the market remains low, banks will stop lending to each other. This makes loans, mortgages and bank accounts at risk of increased charges.

Savings is also at risk – as there is a real risk of banks going bust.

Personally I think that the US government should pay the money, which won’t cost taxpayers in the short term – and which will protect your savings and help provide the economy access to money when they need it.

Brian Armstrong

September 30th, 2008 at 2:33 pm

Hi Alex, i agree interest rates will go up in the short term, but that’s ok. The fed can adjust that how they normally do it with the federal funds rate if needed.

I’m not as worried about savings either…FDIC insured right? I don’t mind the FDIC one bit.

It seems like a big expense for a problem that will automatically correct itself with natural market forces.
B

Freddie

September 30th, 2008 at 12:51 pm

B,
I am with you on this one. My stomach turns when I think about them pledging our money to bailout some large company that took their profits, moved them offshore, didn’t pay taxes on it in the first place, then turn and get bailed out by US!!! That is crazy!

I read a blog post somewhere, wish I could find it, that said instead of giving $700 Billion dollars to the banks, why not give it to those 200 million TAX PAYING adults, which breaks down to $3,500 per family.

Like you said, the banks will be bought out, which is what is happening anyway and the people will be able to put some much needed cash into your pocket.

What makes me sick again and I will be specific is that Chase bought WaMu for 1.9 billion dollars on Thursday. On friday, they sold a stock offering (a small portion of the business) and raised $10 billion dollars….THE NEXT DAY!!!!

Are you phucking kidding me? Sorry B for the language, but I feel the expression was proper.

The next day they show a profit of 8 billion dollars. Then, no one is even thinking about the 300 billion dollars in mortgage assets they aquired in this deal, which they got in essence for free.

The could (it will never happen because they are greedy beyond comprehension) forgive all the 300 dollars and still come out with killer profits, you know what they are going to do.

They are going to restructure these mortgages (hopefully at a minimum) and sell them for 66% of the value and raise another 200 billion dollars FREE AND CLEAR!

You could call that great capitalism, I call it some bull….

Glad to get that off my chest!

Brian Armstrong

September 30th, 2008 at 2:45 pm

Haha, yeah…it would be nice to get the $3,500 back that the government took in taxes, I think it would do far more for the economy. Ironically, they probably don’t even have the money…which means they are going to have to print the money to come up with the $700B and cause inflation. I have no evidence for that whatsoever, but just a guess. Either way, it’s not much better.

I don’t have as a big of a bone to pick with JP Morgan though. Sure they are cleaning up…but they deserve it man. While every bank out there was making the wrong decisions they (apparently) are one of the few who didn’t get caught up in it (Wells Fargo is another, i believe?), so now they are reaping the rewards.

That is a great thing actually, its a reward for the companies who were smart and a punishment for the companies who made bad decisions. Helps the economy move forward and benefits the consumer (fewer poorly managed companies!).

Also, keep in mind that getting mortgage assets is not the same as getting $300B in cash. They probably did the stock offering because they needed the liquidity to take on the acquisition which is not cheap. Again, just guessing…but overall I have no problem with what they did. In a sense they saved Wamu’s (and their customers) asses and it will hopefully turn out well for everyone.
B

Freddie

September 30th, 2008 at 3:18 pm

B, we can agree there. We all hope that it turns out well for the people!

Brian Armstrong

October 1st, 2008 at 8:15 pm

Here is some more perspective on just how big $700B is:

http://news.yahoo.com/s/livescience/20080930/sc_livescience/howmuchis700billion

phil

October 2nd, 2008 at 11:32 am

Couldn’t agree more!!! Let me (and my kids) keep our money! Leave socialism to the socialists!

Brian Armstrong

October 2nd, 2008 at 3:16 pm

You’re right Phil. Somehow the “free-est country in the world” has slipped to 8th place now in economic freedoms:
http://baumanblog.sovereignsociety.com/2008/09/us-slips-in-eco.html

The government owns 40% of our companies through taxes. 14% higher than the global average.
http://www.taxfoundation.org/news/show/23627.html

Kathryn Loving

October 16th, 2008 at 6:44 pm

Hi Brian,

I just have to comment on the response you gave Alex that:
> i agree interest rates will go up in the short term, but
> that’s ok. The fed can adjust that how they normally do it
> with the federal funds rate if needed.

The federal funds rate attempts to influence interest rates but doesn’t control them.. I don’t understand this perfectly but although the current federal funds target rate for interbank lending is 1.5%, the actual rate for interbank lending is currently around 4.5%. So the distrust in the market is currently playing a bigger role than the Fed.

I think the $700 billion bailout is more about instilling trust in the market. If it works, and they invest it wisely, the government will make a profit (or at least make some of it back) on the loans they make now, as the markets improve.. (if they improve..)

Compare that to the $563 billion (and counting) that we’ve spent on the Iraq war, and we will never get a dime of it back. I’m just saying that we might end up looking back on this bailout as a good investment.

I think you’re somewhat of a Milton Friedman fan so you should read his theories on the causes of the great depression.. Not sure he would agree with everything they’re doing today, but he definitely thought the Fed should act as “the lender of last resort” and should have quickly bailed out failing banks during the great depression.

Kathryn

Brian Armstrong

October 18th, 2008 at 12:41 am

Hey Kathryn, you’re right the federal funds rate only has an indirect effect on interest rates (I don’t understand it entirely either) and the Iraq war is a colossal waste of money. As for Milton, I’m not entirely sure but I think he said the fed tightening the money supply is what caused it. In other words, there was a shortage of cash and when people came to get it out the Fed should have provided it…like the actual paper currency. Worst case print more of it until people stop asking for their deposits. Not bailing out banks that made poor business decisions, etc. Somewhat different…but I don’t claim to be an expert on the subject, that is just my understanding.

I do know that 200,000 tax payers investing their own money are going to do a lot better than 10 bureaucrats in a room spending all of ours for us.

As Milton was fond of saying, “you will never spend someone else’s money as carefully as you will spend your own”.

jere

November 17th, 2008 at 11:01 pm

My brother in law had the best idea. If the government paid off everyones, lets say 21 and older that have a job and are tax payers, bills up to a million with that 700 billion bailout, everyone would be a winner. Loans would be paid off, companies would be back in the black, people would have the money to buy new things and business would be back in business because of sales. A win win for everyone.

Delores

November 18th, 2008 at 8:18 pm

Whose going to bailout the taxpayers when we’re through bailing out everyone else?

Breaking Free

Government, Quit Using My Money To Bailout Companies!

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