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Source link: http://archive.mises.org/9231/a-verdict-on-the-bank-stimulus/

A Verdict on the Bank Stimulus

January 14, 2009 by

From this morning’s New York Times:

On Tuesday, Mr. Bernanke publicly made the case that one of the most unpopular and most scorned programs in Washington — the$700 billion bailout program — needs to pour hundreds of billions more into the very banks and financial institutions that already received federal money and caused much of the credit crisis in the first place.

So the banking system, already flush with excess reserves, needs more money. Especially Citi. Wasn’t this the very scenario we were promised would be avoided when the stimulus package was passed last October?

{ 8 comments }

prettyskin January 14, 2009 at 8:26 am

American taxpayers have short-term memory. Things that enraged them in October 2008 are all forgotten. Time and time again, the politicians vociferous collective recklessness overwhelms the taxpayers and they do nothing. “We the people” are dead, completely dead.

The emotion greed is at work here, ask for more since what’s in the bank is not enough. The bankers’ proposition, our way of life is not negotiable. With their hands out to loot the Federal treasury and always seem to believe it is their “right” to get what they asked for from the taxpayers.

Why do “we the people” allow ourselves to be held in bondage like slaves shackled to credit cards, banks, and politicians (Ivy leagues brainless)?

We the people must understand that leaders inspire the people and challenge them to do what’s right.

Mr. Daedal January 14, 2009 at 8:54 am

PrettySkin,

“We The People” suffer from a condition known as ‘ignorance’. Those in a position of power are (perceived) to have knowledge that is beyond comprehension of the masses. They tell us they know best, and we’re inclined to believe them without any skepticism or due dilligence.

It’s much easier to surrender reason to nice sounding rhetoric and blanket promises — it helps us avoid dealing with issue ourselves.

We’re appalled by how many people were swindled by Madoff, yet we’re complacently being swindled in a similar fashion by the collective bureaucrats in Washington.

Pat January 14, 2009 at 8:57 am

According to the BBC (http://news.bbc.co.uk/2/hi/business/7826992.stm), Citigroup got the biggest bailout. And they are considering selling some of their business. Not only that, but some analysts believe Citigroup might be bought by the US government.
In other words, more money out of the window.

Ohhh Henry January 14, 2009 at 9:42 am

“Wasn’t this the very scenario we were promised would be avoided when the stimulus package was passed last October?”

I believe that the actual scenario which you were promised would be avoided was the declaration of martial law and the deployment of the army in major cities, to contain “unrest”.

Harlan January 14, 2009 at 10:19 am

Actually, no. What were were promised is that the money would prevent credit markets from locking up entirely, which would have led to a complete inability for small businesses to borrow or for consumers to purchase cars and houses, and 20% unemployment by Christmas 2008. Which, thankfully, hasn’t happened. The TED spread, for instance, just recently is down below 1% for the first time since Lehman collapsed. That’s good, and indicates some improvement in the credit markets.

I don’t know to what extent more money is needed in the future, but clearly the bailout and the government’s continuing willingness to try to be a lender in this economy, has helped so far.

College Parasite January 14, 2009 at 11:28 am

Harlan: “I don’t know to what extent more money is needed in the future, but clearly the bailout and the government’s continuing willingness to try to be a lender in this economy, has helped so far.”

Emphasis on ‘so far’. What they’re doing is masking the problem. The same banks who were the Fed’s instruments in creating the crisis have been propped up and will further destroy the structure of production. Eventually it will become pretty obvious that the government’s messing with things was no help, unless you want to live an illusion.

The Illusionist January 14, 2009 at 12:57 pm

Harlan,

All the Fed is doing is postponing the pain and building a foundation for even more problems. Consider the following example from http://greenarrowinvestments.com/theory122508.aspx

“To see the effects of our government’s economic policy on a micro scale, consider a person who makes $5,000 a month, and who has a credit card limit of $10,000. By spending more than his income, let’s say the total $7,500, that person increased their debt by $2,500 assuming $5,000 from his income was used to pay down a part of his bill. Next month, instead of spending less than $5,000, in order to help pay down the debt from the month before, he once again spends $7,500.If he continues to spend more than what he makes, eventually he will reach the end of his credit limit. At this point he would have to seriously curtail his spending in order to pay down the debt.

Instead, and similar to our government policies, he opens up a new credit card with an even higher credit limit at $15,000, and proceeds uses it to pay down his credit debt from the original card, while using the remainder for even more spending. You can see where this is going – the more debt this person takes on, the more trouble he’s causing himself in the future, even if he is able to sustain his spending habits in the short term. The only way he is able to sustain himself is by having more and more credit available to him. Once credit runs out, he will be left with two things: his salary and his debt.”

What the government is doing is Not makings better. It’s prescribing Tylenol for a headache that was caused by a Tylenol overdose.

Bruce Koerber January 14, 2009 at 7:59 pm

No one thinks that the drug pusher falls back into an ethical mode and then administers a slow calculated dosage or even a remedial withdrawal regiment.

The drug pusher is ego-driven and as such is narcissistic, focused only on the immediate future (the short run).

The ‘stimulus’ will be repeated and the dosage increased so the drug pusher has a tighter grip on the poor enslaved victim.

Bernanke is such a narcissist!

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