We Bailed Out the Wall Street Banks – Should We Have Bailed Out the Consumer Instead?

Okay so the question has been asked; why didn’t be bail out the consumers, instead of the banks? Well, that is on a lot of people’s minds, and who can blame them right? Well, let’s discuss this shall we? You see, bailing out the banking system was very important for a couple of reasons;

The stability of money flow, and credit is a major reason. Unfortunately, even bailing out the banks, which in hindsight it looks like the government will get their money back with interest from Citigroup, Goldman Sachs, Bank of America (Countrywide), etc., etc. – but that still doesn’t make it okay.

Now then, we could also say that the bailing out of AIG was perhaps a little over the top, however AIG was guaranteeing using insurance all those CDOs, and mortgage bundles. Many of those mortgage bundles were bought by pension funds, well-connected hedge funds with huge lobbying power (Carlyle Group for instance), and the banks. It looks like AIG will pay back the government with interest, just as General Motors and Chrysler will.

Do I approve of all this, no, I am deeply troubled, because once you start guaranteeing that the federal government is the lender of last resort, then you change the behavior of risk and reward in the marketplace. Indeed, that is some of the problem in the first place with Freddie and Fannie – why the game went so far.

We shouldn’t let off the hook the rating agencies either. Nor, should we let off the hook the consumers who duly signed their name to loans they could not afford, as many had bought several homes hoping to flip them for profit. Unraveling this huge fiasco now, and with Freddie and Fannie some $10 trillion exposure, some say 14 trillion, depending on market valuations is going to take a while.

If the federal government gave money to consumers to spend there probably would not have been the job losses, however it seems like when money is given to consumers they buy products made in other countries, and that money only stays in the United States for a few transactions and ends up overseas inflating those other country’s economies.

What would’ve consumers purchased, had they had more money? Some might have paid the mortgages the holder homes for a longer period of time, Intel they eventually lost their homes anyway. Some might’ve bought new cars, which certainly would’ve helped the American workforce, and many would’ve bought electronic knickknacks; iPhones, iPads, flat-panel TVs to watch the Super Bowl game for instance.

If you are a Christian, perhaps I can have you discussed the philosophy of “don’t give a man a fish, teach him to fish,” and in that regard giving money to consumers, is like giving away fishes, which I think we can both agree, is less than worthy an endeavor.

See that point?

I hope you do, and I hope you will please consider all this and think on it.