Should the US Government Have Bailed Out Consumers Rather Than Banks?
The other day, I was discussing a very interesting topic with an out of state acquaintance.
They asked a rather intriguing question, and inquired if perhaps it would have been better off to have bailed out the consumers rather than the banks.
Yes, well I certainly understand that argument, and I certainly wouldn't be upset at anyone who felt that way.
Of course there is another issue, and that would be that if you reward people who have made bad choices with their purchases, or the loan documents they had signed, that you are rewarding poor fiscal management behavior on the part of the consumer.
In this case, and I'm not one for bailing out anyone because I am a free-market capitalist, but I do believe that the Wall Street banks, specifically the investment banks did learn their lesson, as one of the largest banks was allowed to fail; Lehman Brothers.
Many people in hindsight say that should not have been allowed, and that Lehman should have been saved - that the New York Fed along with Goldman Sachs, and other investment banks should have made a deal to save it.
However as we learned later on we found out that Lehman Brothers was cooking the books using a similar scheme as Enron.
We would've thought after Sarbanes-Oxley that corporations wouldn't do that anymore, but Lehman Brothers, and they are certainly not alone by any means had set up dummy corporations and funneled losses to them, and in other cases hidden money.
The argument has been made of course that if you give money to consumers, they would immediately go out and spend that money in the marketplace, and the rest they would've saved, and that would've done two things; 1.
) It would have increased the amount of savings, and helped with the bank's reserve requirements; 2.
) It would've kept consumer spending money, and therefore, we would have had the big hit with the jobs.
Now then, I realize that my acquaintance is from Michigan, and jobs are more than a huge issue there, but they are certainly not alone, I can tell you that out here in Los Angeles our unemployment is one of the highest in the country alongside of those in Detroit.
Luckily we are not as bad, but if you look at the top 10 worst areas hit for unemployment, were certainly up in the top tier.
And it's not funny.
Indeed, I hope you will please consider all this.
They asked a rather intriguing question, and inquired if perhaps it would have been better off to have bailed out the consumers rather than the banks.
Yes, well I certainly understand that argument, and I certainly wouldn't be upset at anyone who felt that way.
Of course there is another issue, and that would be that if you reward people who have made bad choices with their purchases, or the loan documents they had signed, that you are rewarding poor fiscal management behavior on the part of the consumer.
In this case, and I'm not one for bailing out anyone because I am a free-market capitalist, but I do believe that the Wall Street banks, specifically the investment banks did learn their lesson, as one of the largest banks was allowed to fail; Lehman Brothers.
Many people in hindsight say that should not have been allowed, and that Lehman should have been saved - that the New York Fed along with Goldman Sachs, and other investment banks should have made a deal to save it.
However as we learned later on we found out that Lehman Brothers was cooking the books using a similar scheme as Enron.
We would've thought after Sarbanes-Oxley that corporations wouldn't do that anymore, but Lehman Brothers, and they are certainly not alone by any means had set up dummy corporations and funneled losses to them, and in other cases hidden money.
The argument has been made of course that if you give money to consumers, they would immediately go out and spend that money in the marketplace, and the rest they would've saved, and that would've done two things; 1.
) It would have increased the amount of savings, and helped with the bank's reserve requirements; 2.
) It would've kept consumer spending money, and therefore, we would have had the big hit with the jobs.
Now then, I realize that my acquaintance is from Michigan, and jobs are more than a huge issue there, but they are certainly not alone, I can tell you that out here in Los Angeles our unemployment is one of the highest in the country alongside of those in Detroit.
Luckily we are not as bad, but if you look at the top 10 worst areas hit for unemployment, were certainly up in the top tier.
And it's not funny.
Indeed, I hope you will please consider all this.
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