Brad DeLong: What Would Have Happened If We Didn't Bailout The Bankers?

Project Syndicate :

It is worth stepping back and asking: What would the world economy look like today if policymakers had acceded to the populist demand of no support to the bankers? What would the world economy look like today if Congressional Republican opposition to the Troubled Asset Relief Program (TARP) program and additional deficit spending to stimulate recovery had won the day?

Read the whole story: Project Syndicate

Comments

[nopilikia]

The Credit Unions would have stepped up just like they are now. America would not be trillions in debt. We wouldn't worry about Wall St pay and bonuses because they wouldn't have any money to pay them. Congress would have to tighten their belts because a large chuck of lobbyist money would be gone. All in all, if the to big to fail, failed, things wouldn't be so bad. Best of all the Repubs would now be in really, really bad shape. But alas, hysteria prevailed.

[NO more Bonus]

Due to Obama's inability to create an effective jobs program the only beneficiaries of this recovery is Wall Street- the same it's been since the 80's. FDP knew how to make work, but Obama doesn;t or chooses not to.

good articles; http://financeopinionss.blogspot.com
because of this he may lose in 2012.

[LunaPark]

Letting Lehman fail was the best decision so far. TARP was meant to free up credit. But the banks didn't lend. What is the difference between a failed bank and a bank that doesn't lend? No one knows what really happened to the TARP funds, but it appears the banks horded the cash. It is safer for the bank to sit on the cash than to lend it out.

Germany decided to severely curtail any bailouts and offered very little stimulus. Australia and New Zealand (maybe other countries) decided not to bail out anyone. These countries are recovering. The strength of the NZ and AU dollars is amazing compared to the falling US dollar. We're in trouble. We have spent too much and there is no way to pay it back without severe taxes or debasing the currency. The dollar slowly loosing value, 15% and falling over the last year.

[sonofsamphm1c]

TARP was 700 billion. Germany's version was 672 billion.

[steppenwolfsayshi]

If I had been running the things, I would have bailed out Bear Sterns, Lehman Brothers and AIG, stopped the naked short-selling and put all the crooks in jail.
If you're going to compare the unemployment rate from the 1930's, you should calculate it the same way. Using household surveys, it is currently above 20%. I'm personally not impressed.

[swift goat pet for truth]

Readers both left and right should read this articles and others like it.
We really were close to worldwide economic implosion, and Obama's policies (as well as Paulson's) pulled us back from the brink.

They were not optimal, but still did the job at hand.

Reading comments both right and left, I do not believe many people understand this.

"What has Obama done? NOTHING"
Well, except help pull the world back from total economic destruction.

[Jlong]

I completely agree. It wasn't perfect, but it stopped the bleeding. Now if only the follow through were better, I think more people would be happy.

[planetjeffy]

We should be in extreme economic collapse - had Obama not done what he had to do - prop up the banks to prevent a complete collapse of the banking system. It was the least worst thing to do. Considering that we have not gone over 10% (reported) unemployment, Dow at 10K and even a little uptick in the economy - it is amazing, when you look at where we were a year ago. That doesn't help if you've lost your job, lost your health care, lost your house...but it could be much much worse.

[swift goat pet for truth]

yes

[LunaPark]

Bush started the bank propping. TARP was a Bush plan.

[foxisms]

The article bites it.
No real mention of what benefit or detriment followed the bank bailouts.
A better question might be, what might have happened had the gov't divided all those billions among the American people which is where it all comes from in the first place.
I imagine lots of people could have gotten a leg (or two) up on their housing payments and credit debt which would have helped the housing and credit industries in the process and could have given a boost to the banks in that way without the need for billions in corporate welfare.
The unemployed could have carried their own weight for a fairly good spell, without over burdening the budget for extensions for unemployment insurance.
That's just two, right off the cuff.
But of course I netier have a degree in journlism or the ear of the decision makers in Washington...which is strange. I was schooled in the public system and told from day one, that this was the people's government.

[BurtonOerney]

Everybody gets six thousand dollars. That's the plan? The investments and accounts in the banks that would have failed were larger than the FDIC could have borne. So if I have $10,000 in a retirement fund, you think I would be better off exchanging that for $6000?

[swift goat pet for truth]

No.
Just no.

[LatteLibertine]

On a side note, if you want to track which Lobbyists activity, try the below site-

http://www.opensecrets.org/lobby/top.php?showYear=2009&indexType=i

[sonofsamphm1c]

Without the bailouts the country would likely be in a far worse place than the country was in the Great Depression. Unemployment then reached 24%, but there was a major difference between that economy and the one we have now. At that time a substantial percentage of Americans worked in agriculture, and because people die if they do not eat, agriculture can only shrink so far. That means agriculture employment prevented the Great Depression unemployment number from going much above 24%. In today's economy hardly anybody works in agriculture. Most jobs have no support from necessity. We can do without policemen, teachers, firemen, accountants, real estate agents, insurance salesmen, adjusters, mechanics, doctors, lawyers, retail workers, etc. We cannot do without people who harvest potatoes. Unemployment for Great Depression II could easily have topped 65%.

Not doing the bailouts would have thrown this country in decades of economic misery for a majority of Americans. Misery. A level of misery few Americans have ever known.

[Butquestioning]

You're absolutely right... and the Republicans want to take us there. Their failed policies led us to the problems we have and they want to repeat them. There may have been other options that would have worked to help some people more directly but generally, it has been pretty successful. The biggest problem is that we listened to the Republicans and didn't do enought to stimulate the economy with more programs to put people to work with things like the CCC's in hte 30's.

The Republican say that government is spending too much money and that the private sector should be allowed to take a bigger role but nothing I've seen stops them from doing that. They still have the Bush Tax Cuts that were supposed to create new jobs as well as the new tax cuts that the Obama Administration passed, so they should be able to what ever is needed to have the private sector - business "bail out" the economy. But, we all know they can't and only the government has the capabiity to really do this. Just more smoke and mirrors from the GOP!!!

[sonofsamphm1c]

And, sadly, progressives are actually helping the neocons and libertarians. Whenever one finds himself agreeing with Ron Paul, take massive medications. If a neocon says "let them fail" and it seems reasonable, check yourself into a psychiatric ward.

[dadw5boys]

So Funny.

Bushco / Paulson make legal contracts with Banks giving them Free Money and no demands for stock or Equity in the Banks.
President Obama must honor those contracts or the U.S. Dollar crashes.
Now President Obama was able to LURE the Banks away from the Free Money and actually get Equity in the Banks for the money and he is a bad person.

What did President Obama accomplish ?
1. He did not allow the Dollar to collaspe send the USA into an instant depression.
2. He got Stock in the Banks.
3. He had direct input into how the banks take risk.
4. Setup a clearing house for the AAA paper which Banks are resisting using.
5. Enforcing the Truth in Lending Laws.
6. Enforcing the Insider Trading Laws.

What did Bushco '/Paulson accomplish ?
1. They forced Fannie and Freddie to assume the bad AAA paper from failing banks.
2. They vilified Fannie and Freddie because of a few problems. But none of those problems where with lending money. It was in accounting for bonuses.
Fanne and Freddie only had 4 % in bad loans on their books when the crash came which is way below acceptable limits. Fannie and Freddie did not overvalue homes and make loans on property without doing the paper work correctly.

[sonofsamphm1c]

Very good points about F&F. The Republican initiative to reform F&F was not a reform at all. All they wanted to do was force F&F to sell off their MBS portfolio, which would not have averted the financial crisis and it would not have lessened the financial crisis. F&F might have been in a slightly better position, but somebody else would be in a far worse position. Net benefit of their reform proposal = ZERO.

[FearlessFreep]

One of FDR's financial experts said that giving government money to banks is like applying fertilizer at the top of a tree, instead of the roots where it's needed.

[BurtonOerney]

Why then did that administration extend an unlimited line of credit to the 99% of banks that reopened after the bank holiday? How could something so wrong have worked out so well?

[need more jobs]

A friend asked me if it really is hopeless and I said yes. There will be no meaningful change or reform and things will continued suck1ng they way they have since Reagan.

good articles; http://financeopinionss.blogspot.com

And that was that.

[fcsakes]

If we had bailed out the people instead of the banks, Obama would be in office forever. This was the biggest mistake of all time. I think they know that.

[rollingrock]

Handing trillions of dollars to the crooked too big to fail zombie banks has made the economy much worse, not better. They were the source of the economic and mortgage crisis in the first place so letting the these zombie parasites die would have been a huge relief for the economy, relieving us of the dead weight. But instead, they are alive and back to their crooked ways, thanks to Bush, and now Obama whose administration is staffed and controlled by former Goldman Sachs lobbyists.

[dannyluv]

I for one, demand testicles! Give me the testicles of these bankers! I want testicles I say!