Bailouts & Economic Stimulus

When the most recent recession was in full swing, the outgoing and incoming presidential administrations decided it was time to use an emergency situation to spend a combined $1.5 trillion of debt-borne money in their efforts to “help” the problem.

This was as ill-advised as it was unnecessary.

A major component of Bush’s and Obama’s combined fraud was the notion the federal government could more wisely pick-and-choose how to distribute and award a combined $1.5 trillion than the people of the United States of America.

Let’s say for the sake of argument I agreed with the Washington brain-trust that the T.A.R.P. legislation and American Reinvestment and Recovery Act (the so-called stimulus) were absolutely necessary to prevent economic armageddon nine and ten years ago. A much smarter approach would have been to take that $1.5 trillion and evenly disburse it to every household which was under mortgage at that time.

In the late months of 2008 that would have been roughly 50 million homes. So, with my plan, almost 50 million households would have received a U.S. Department of Treasury check for roughly $30,000 each.

Common sense dictates that in light of the urgent nature of the situation for both the U.S. economy and international markets, the vast majority of those recipients would have done the right thing with that money and paid enough to their respective lenders to at least get current with their mortgages. Most, I’m inclined to believe, would have used enough sense to even pay-off several additional months’-worth of mortgage payments – which would have helped those homeowners knock-down the principle for those debts, thus significantly reducing their debt burden.

For some, $30,000 would have been enough to pay their remaining balances in full and rid themselves of that form of debt.

At the very least, this activity would have led to a flood of (let’s say) about $1 trillion into the American financial sector as the people at-large began feverishly making payments to save their homes.

So, this would have left about half-a-trillion dollars still to be used. Common sense (again) dictates many of the recipients would have opted to buy a new car – thus eliminating the need for the automotive bailouts. Unspent portions beyond that would have led to a surge of cash flow in domestic retail markets and created a potentially more legitimate recovery from the recession nightmare.

A small percentage, of course, would have gone into savings and other retirement/”rainy day” accounts. But even that option would have had positive benefits as still just $10-to-20 billion (just… sigh) out of all that would have shored-up the liquidity of banks nationwide and boosted confidence in financial markets.

And then, there is the largely unexamined positive consequence of tackling the 2008 crisis in the manner described above.

Over the course of 2008 through 2010, a total of roughly 8 million homes were foreclosed-upon (that doesn’t include the 1.3 million in 2007, when the housing bubble burst began to really get rolling). For the purpose of simpler math (and due to the absence of the hard data on this) let’s assume roughly one-quarter of those mortgages had two (or even more) signatures (spouses, co-signing parents, etc.) on them.

As a result of bypassing the homeowners and lending $700 billion directly to the banks and other financial sector entities in the manner the Bush Administration did, nearly 10 million people during that time had to endure having a foreclosure hanging like an enormous dark cloud over their credit histories. If you believe in a borrow-and-spend-on-credit economy much like so many advocate today, this meant as many as 10 million adults were completely taken out of that portion of the economy. Their credit ratings fell far too deep into disrepair for any of them to be able to establish credit again for the remainder of this decade.

That ongoing complication to the American economic picture played about as significant of a role in hampering recovery as any other factor.

And no one was talking about this.

The primary downside to everything laid-out above is if anyone in the capitol actually had taken a moment to think things through in the waning months of 2008 and handled the bailout intelligently – as opposed to the money carousel that played-out – it would have served, unfortunately, to cement in the minds of the general public the terribly misguided notion all the solutions to society’s ills can be found in government action.

Also, whether $1.5 trillion was squandered via the Bush and Obama plans or put to use more intelligently, recovery still was going to be hamstrung by the resultant inflation caused by rapidly flooding the domestic and world economies with that much additional currency. This was another aspect of bailouts and stimulus that was irresponsibly underreported.