what would have happened without bailout/stimulus?

[Name Lips]

The politicians are stumbling over each other trying to blame each other for the bad economy.

But ultimately it doesn't matter whose fault it is, does it?

In 2008 the financial markets imploded and the stock market crashed. The Fed injected a huge sum of liquid cash money into the system to prevent a total meltdown.

Even before this, banks were failing and were being bailed out. The trend continued during and after the crash. Huge sums of cash were invested in propping up the banks to prevent them from crumbling down.

What would have happened if this hadn't happened? If the market were simply allowed to crash, and the Big Banks were simply allowed to fail?

Some claim it would have been "The End of the World as We Know It," which certain (left and right wing) fringe groups have been prophesying for years. Some of them still say that all we've done is delay the inevitable, and that the deficits will catch up with us, and it will all fall apart.

But then there were the auto bailouts, and Bush's stimulus, and Obama's stimulus, all of which were aimed at improving the economy, creating jobs, getting money circulating, encouraging spending, and the whole deal. At the expense, of course, of our national deficit.

So, did they help? Make things worse? Do nothing?


Right now is Politics Time. Everybody is spinning the narrative to try to make themselves look good. I think most of them honestly believe what they're saying.

For all we know, without the policies that were enacted we would have sunk into a deeper recession, or all the way into a depression. For all we know, we cut the duration of the recession in half.

Or maybe we doubled the duration. Maybe Bush and Obama did exactly the wrong things, and different things would have rebounded the economy instantly.

Or maybe we're all fooling ourselves when we think the government has any real power over economic cycles, good or bad. Perhaps a crash and slow recovery would have happened no matter what anybody did.

[Brynja]

I will say this- I removed my money from BoA and it is in a small credit union now.

[TiQuinn]

Without the bailout, you have 15% unemployment, a full on recession, a stock market still hanging out in the basement, and anyone spouting off Tea Party rhetoric would probably get kicked in the nads.

Sent from my Droid using Tapatalk

[alternate identity]

The bailout, inadequate as it was, prevented a second Great Depression. We may still get one, if the tea partyers get in.

AI

[Enk]

It would have fragmented the world economy in pretty drastic ways, rolling back the clock to approximately 1950 as far as how we interact with foreign economies. I figure we would have had a collapse followed by a long recovery that would have been the 1960's all over again.

Some kind of stimulus really was necessary. Note, however, that I think bottom up stimulus (by freezing foreclosures, forcing re-negotiation on existing mortgages, and using gov't funds to guarantee loans that went through the re-negotiation and still failed) would have worked evenly than the top down stimulus we got.

[Aloysius]

Note, however, that I think bottom up stimulus (by freezing foreclosures, forcing re-negotiation on existing mortgages, and using gov't funds to guarantee loans that went through the re-negotiation and still failed) would have worked evenly than the top down stimulus we got.

yeah, but it would not have allowed banksters, tradsters and shareholdsters to gang-ass-rape the US taxpayers and the US middle class. IIRC, the speculative money that incited the financial industry to take so much risk is pouring upon Wall Street and the City as much or even more than it was in 2007. Be ready for the next bubble/crash/taxpayer ass-rape cycle.

[cnath.rm]

yeah, but it would not have allowed banksters, tradsters and shareholdsters to gang-ass-rape the US taxpayers and the US middle class. IIRC, the speculative money that incited the financial industry to take so much risk is pouring upon Wall Street and the City as much or even more than it was in 2007. Be ready for the next bubble/crash/taxpayer ass-rape cycle.What I love is how the Dem's keep talking about how the speculation and lax rules were all problems from Bush, and how they were the ones to fix the rules. However nothing they have done would have stopped the bubble/crash from blowing up or even warned them, and they won't stop them from happening again either.

Nobody (in any party) wants to put their career on the line and risk pissing wall street off by actually working on fixing most of the problems.

[Atticus_of_Amber]

As to the general issue...

Without the stimulus, the US would have been in a disastrous situation.

People usually talk about Keynesian stimulus in terms of a deficiency of "aggregate demand" but it can be instructive to look at it from the savings/investment side: With the drop in home values, US consumers saw their perceived wealth plummet and compensated by approximately doubling their savings rate (and consequently dropping their consumption rate). But with consumers not spending, businesses were not going to borrow the newly available savings - hell, they were too busy going bankrupt. That kind of massive imbalance of borrowing and saving can only be balanced in one of two ways - (1) a drop in national income (so that, even though you've doubled your savings *rate*, your income has halved so your savings are at the same absolute level as before) or (2) having the government borrow all that excess domestic saving and spend it on things that employ people.

The Obama administration chose a bit of both: they borrowed a large fraction of the excess savings and spent them on public projects (which is why, despite the massive increase in public borrowing, China hasn't increased its yearly buy of US bonds, the excess has been mostly bought by *domestic* savers) but not enough to compensate for the all of the imbalance. As Krugman was saying at the time, to nullify the shock the stimulus needed to be about 1.5 times as large. Unfortunately, the US was already in debt because of the Shrub's profligate spending on wars and pork for eight years. That meant that, even without the GOP and quite a few Dems being monumentally block-headed, it would have been very hard for Obama to do all that the textbooks say he should have.

(By contrast, Australia's conservative Howard government had run eight years of consecutive surpluses - so much so that they were getting close to eliminating the market of Australian government bonds because they weren't issuing any new ones and the old ones were progressively maturing. That's what you're *supposed* to do in good times. And it's why the Rudd Labor government could drop a pretty massive stimulus and yet hardly raise the eyebrows of Australia's creditors. Of course, given the way the Aussie economy basically treated the global financial crisis as if it were an unexpected pothole on an otherwise smooth superhighway, the Rudd stimulus may not have been necessary in retrospect...)

As for the bailout, that's a different issue. Most of it has either been paid back or is probably going to be. Unlike the stimulus, from the POV of the US taxpayer, it's been pretty much a wash. And in a sense, that's my criticism. The US taxpayer should have made a *profit* on the bailout. The banks were on their knees and would have accepted any conditions in order to be bailed out. The US government should have demanded shares in exchange for its bailout money. Masses of shares. Make them non-voting in the hands of a government if your scared of "nationalisation", but screw the banks for a massive dilution of the current shareholders' holdings (they are the ones who are supposed to be taking the risk, after all). Then, when things stabilise and the banks start making mega profits again (as they have), the US government should have sold the shares and made a killing. Hell, the proceeds might have defrayed a big chunk of the cost of the stimulus. That's right, you could have effectively used the bailout to make shareholders in the big banks pay for the stimulus...

But that didn't happen. I wonder why? Could it be that some of Obama's key economic advisers and big donors have big Wall Street connections (and a lot of their personal wealth in bank shares and options)? Nah...

[Aloysius]

However nothing they have done would have stopped the bubble/crash from blowing up or even warned them, and they won't stop them from happening again either.

That's because they have done nothing. Just look the Mother Jones article about who owns the US congress... Wall Street owns them. And Obama seems to be in love with the worst of the financial industry.

[Ancalagon]

Krugman is saying that the problem with the bailout/stimulus was that it didn't go far enough.

Here he compares it to jumping across a chasm, but not trying hard enough
http://www.nytimes.com/2010/10/25/opinion/25krugman.html?_r=1&partner=rssnyt&emc=rss

Here he says that the spending wasn't the type that creates jobs:
http://www.nytimes.com/2010/10/11/opinion/11krugman.html?partner=rssnyt&emc=rss

Here he's saying that it's not time for austerity measures:
http://www.nytimes.com/2010/10/22/opinion/22krugman.html?partner=rssnyt&emc=rss

If he is right, the UK is in for a world of hurt

[Atticus_of_Amber]

Krugman is saying that the problem with the bailout/stimulus was that it didn't go far enough.

Here he compares it to jumping across a chasm, but not trying hard enough
http://www.nytimes.com/2010/10/25/opinion/25krugman.html?_r=1&partner=rssnyt&emc=rss

Here he says that the spending wasn't the type that creates jobs:
http://www.nytimes.com/2010/10/11/opinion/11krugman.html?partner=rssnyt&emc=rss

Here he's saying that it's not time for austerity measures:
http://www.nytimes.com/2010/10/22/opinion/22krugman.html?partner=rssnyt&emc=rss

If he is right, the UK is in for a world of hurt

He's right. It is.

[hobbiteer]

From my incredibly simple and possibly naive knowledge of economics I see what was done as only minor points short of what was done the the Deutchmark after WWI. Saddled with a massive debt, Germany printed money like there was no tomorrow. The US didn't go to the extreme Germany did, but I feel they came close. By supplying failing banks, and other industries, with massive funds, they set a precedent that things don't need to change. They flooded the market with a number so big, it made most Americans' jaw drop at it.

Releasing that large an amount of funds does exactly what Germany did when it printed money, it devalues it. They provided a trickle of extra cash to the middle/lower classes and all that did was give them a minor boost. I personally felt like I got about a day of OT pay when I got my whopping 350 dollar check. I mean really, how the fuck is that a stimulus? I can't even consider it a bonus, it's so small. Now, I know that to some, that is a pretty decent amount of money, and they would be right for their needs.

I believe that the only thing that happened with the bailout and the stimulus is that they devalued money, re-enforced the mindset that nothing needs to change, and turned a willful blind eye on the serfdom that supports the system.

My solution would have been to let the banks fail, holding up that whole FDIC thing only. Let wall street crumble, let the auto industry break down, and let the housing market finish collapsing. Either pull additional funds out of circulation which would increase the value of my money, or leave the amount of circulating money alone.

I fully understand my solution is drastic. I would even agree to call it catastrophic. But I believe it would allow the system to show where things work, support innovation and truly and fully change the way things are for the better.

Instead of that, we have politicians spewing factoids and propaganda at the masses. And masses we all know are stupid. People are stupid, they will believe a lie because they want it to be true, or they are afraid it is true

[Name Lips]

Lots of people think that if we had let nature take its course, and just let the banks fail, that it would have precipitated a complete global collapse. A literal fall of civilization, a complete collapse of society. Possibly billions dead, the few self-sufficient survivors living in constant fear of attack.

But we'll never know. But the mere possibility of this was enough to convince people that it was a better option to bail out the banks.

[Hatter]

A stimulus only causes inflation if the government makes it clear that it will not pay back the debt it takes to cover it. It's not the same as printing money.

[Utrecht]

bailout = needed 100%

Stimulus = needed - but horribly misapplied. If it was as Obama advertized it

- targeted
- timely
- temporary

It would have done exactly as Krugman and all of the Kensyian lovers advertised.

Thus far all it has been has been targeted - primarily at Democrat constituencies. (The GOP would have done the same thing - elections have consequences).

[Ergeheilalt]

bailout = needed 100%

Stimulus = needed - but horribly misapplied. If it was as Obama advertized it

- targeted
- timely
- temporary

It would have done exactly as Krugman and all of the Kensyian lovers advertised.

Thus far all it has been has been targeted - primarily at Democrat constituencies. (The GOP would have done the same thing - elections have consequences).

Word up, son. I still want to rip the gonads from the banksters and replace them with grenades, but hey, I'm just channeling RSM.

[The Winslow]

Lots of people think that if we had let nature take its course, and just let the banks fail, that it would have precipitated a complete global collapse. A literal fall of civilization, a complete collapse of society. Possibly billions dead, the few self-sufficient survivors living in constant fear of attack.

That seems quite unlikely. Especially the "billions dead" part.

A complete failure of the international (and intranational) financial systems would lead to a few months of chaos while the parallel economy emerges. Bartering would replace trading, resources would be commandeered and distributed on a need-to-have basis until normalcy could be restored, and then we'd go on as we always did, perhaps with a few more checks on the financial sector and its excesses.

It nearly seems like a missed opportunity, in fact.

[Ancalagon]

Krugman has written an interesting piece about stimulus and bailouts - where he compares a small island nation with a troubled banking sector with another small island with a troubled banking sector. It's thought provoking stuff - and rather troubling. Why should the tax payer be put on the rack for bankers and borrowers?

http://www.nytimes.com/2010/11/26/opinion/26krugman.html?ref=paulkrugman

Eating the Irish
By PAUL KRUGMAN
Published: November 25, 2010

What we need now is another Jonathan Swift.

Most people know Swift as the author of “Gulliver’s Travels.” But recent events have me thinking of his 1729 essay “A Modest Proposal,” in which he observed the dire poverty of the Irish, and offered a solution: sell the children as food. “I grant this food will be somewhat dear,” he admitted, but this would make it “very proper for landlords, who, as they have already devoured most of the parents, seem to have the best title to the children.”

O.K., these days it’s not the landlords, it’s the bankers — and they’re just impoverishing the populace, not eating it. But only a satirist — and one with a very savage pen — could do justice to what’s happening to Ireland now.

The Irish story began with a genuine economic miracle. But eventually this gave way to a speculative frenzy driven by runaway banks and real estate developers, all in a cozy relationship with leading politicians. The frenzy was financed with huge borrowing on the part of Irish banks, largely from banks in other European nations.

Then the bubble burst, and those banks faced huge losses. You might have expected those who lent money to the banks to share in the losses. After all, they were consenting adults, and if they failed to understand the risks they were taking that was nobody’s fault but their own. But, no, the Irish government stepped in to guarantee the banks’ debt, turning private losses into public obligations.

Before the bank bust, Ireland had little public debt. But with taxpayers suddenly on the hook for gigantic bank losses, even as revenues plunged, the nation’s creditworthiness was put in doubt. So Ireland tried to reassure the markets with a harsh program of spending cuts.

Step back for a minute and think about that. These debts were incurred, not to pay for public programs, but by private wheeler-dealers seeking nothing but their own profit. Yet ordinary Irish citizens are now bearing the burden of those debts.

Or to be more accurate, they’re bearing a burden much larger than the debt — because those spending cuts have caused a severe recession so that in addition to taking on the banks’ debts, the Irish are suffering from plunging incomes and high unemployment.

But there is no alternative, say the serious people: all of this is necessary to restore confidence.

Strange to say, however, confidence is not improving. On the contrary: investors have noticed that all those austerity measures are depressing the Irish economy — and are fleeing Irish debt because of that economic weakness.

Now what? Last weekend Ireland and its neighbors put together what has been widely described as a “bailout.” But what really happened was that the Irish government promised to impose even more pain, in return for a credit line — a credit line that would presumably give Ireland more time to, um, restore confidence. Markets, understandably, were not impressed: interest rates on Irish bonds have risen even further.

Does it really have to be this way?

In early 2009, a joke was making the rounds: “What’s the difference between Iceland and Ireland? Answer: One letter and about six months.” This was supposed to be gallows humor. No matter how bad the Irish situation, it couldn’t be compared with the utter disaster that was Iceland.

But at this point Iceland seems, if anything, to be doing better than its near-namesake. Its economic slump was no deeper than Ireland’s, its job losses were less severe and it seems better positioned for recovery. In fact, investors now appear to consider Iceland’s debt safer than Ireland’s. How is that possible?

Part of the answer is that Iceland let foreign lenders to its runaway banks pay the price of their poor judgment, rather than putting its own taxpayers on the line to guarantee bad private debts. As the International Monetary Fund notes — approvingly! — “private sector bankruptcies have led to a marked decline in external debt.” Meanwhile, Iceland helped avoid a financial panic in part by imposing temporary capital controls — that is, by limiting the ability of residents to pull funds out of the country.

And Iceland has also benefited from the fact that, unlike Ireland, it still has its own currency; devaluation of the krona, which has made Iceland’s exports more competitive, has been an important factor in limiting the depth of Iceland’s slump.

None of these heterodox options are available to Ireland, say the wise heads. Ireland, they say, must continue to inflict pain on its citizens — because to do anything else would fatally undermine confidence.

But Ireland is now in its third year of austerity, and confidence just keeps draining away. And you have to wonder what it will take for serious people to realize that punishing the populace for the bankers’ sins is worse than a crime; it’s a mistake.

[Enk]

bailout = needed 100%

Stimulus = needed - but horribly misapplied. If it was as Obama advertized it

- targeted
- timely
- temporary

It would have done exactly as Krugman and all of the Kensyian lovers advertised.

Thus far all it has been has been targeted - primarily at Democrat constituencies. (The GOP would have done the same thing - elections have consequences).

Add "but horribly misapplied" to the first line and I think you've got it.

[Utrecht]

Add "but horribly misapplied" to the first line and I think you've got it.

Won't argue that one.

[The Winslow]

Krugman has written an interesting piece about stimulus and bailouts - where he compares a small island nation with a troubled banking sector with another small island with a troubled banking sector. It's thought provoking stuff - and rather troubling. Why should the tax payer be put on the rack for bankers and borrowers?

What happens to the Irish is their own damn fault. They insist on being the EU's fiscal paradise; refusing to tax corporations (including banks!) on their benefits as much as any other European country, while shifting the burden of the cost of the bank bailout to the normal taxpayers. Basically, they're stealing from the poor to give to the rich, which is after all the entire point of capitalism.

[AZRogue]

Now, there's no need to hate on capitalism. It's used as a convenient scapegoat all the time, especially as of late, but it's not the bad guy people make it out to be. Or, to put another way, it's crap, and a horrible system, except for every other system out there.

Really, banks and business are allowed too much influence on our government. The two should be separate, in my opinion, as fiercely as any separation between Religion and State. Government, at its best, protects its citizens from those things too great for them to protect themselves against. Businesses, especially large corporations and banks "too big to fail" are entities that meet that criteria, in my book. Their natural, and healthy, greed, when allowed access to the power of government, will end up setting in place policies and regulations that protect business before the individual citizen.

Businesses should be allowed to play, and expand, and to compete, but within the confines provided for our safety and protection, not their own. Ireland's example is a pretty blatant case of a country's citizens falling prey to a government more interested in the welfare of its corporations than its people. If corporations are allowed that access, of course they're going to take it; it's in their nature to use every advantage to maximize their profits. They have to be not allowed that opening, and not allowed to think of the public sector as an insurance policy, because they will factor that into their risk assessments going forward, if not shown differently.

I hate lobbyists.

[The Winslow]

Really, banks and business are allowed too much influence on our government. The two should be separate, in my opinion, as fiercely as any separation between Religion and State. Government, at its best, protects its citizens from those things too great for them to protect themselves against. Businesses, especially large corporations and banks "too big to fail" are entities that meet that criteria, in my book. Their natural, and healthy, greed, when allowed access to the power of government, will end up setting in place policies and regulations that protect business before the individual citizen.

I am in full agreement.

The concentration of capital, what I dubbed stealing from the poor and giving to the rich, is something that is needed to some extent because some things just require more wealth and power to do than the average person can ever hope to have. That is, after all, why we have governments in the first place. But you can't rely on governments for everything that needs doing and that require vast quantities of funds. That'd concentrate too much power, and too much responsibilities, into too few hands -- hands which aren't universally competent. It only makes sense to let private initiatives happen as well, so you need free entreprise too. And to make that work, banks, corporations, the whole capitalist shebang. It works very well. In fact, it works too well and if you don't check and control it carefully, it goes nuclear. Then you've got yourself a financial crisis that becomes an economic crisis.