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PeakTrader said...

Many people assumed the $750 billion in TARP was a bad idea. However, the U.S. government will recover almost all the TARP funds (including interest).

There should've also been a $750 billion tax cut (or $5,000 for the 150 million workers at the time) to jolt the economy. U.S. households would've paid-down or paid-off high-interest rate debt first (e.g. credit cards), to increase their monthly incomes, and strengthen the banking system, and consumed the "excess" assets and goods, to spur production and maintain employment.

U.S. households would've paid taxes instead of received unemployment benefits, from the higher level of employment, which would've resulted in lower budget deficits, and a higher level of output would've improved living standards.

Significant tax cuts worked under Kennedy in '61, Reagan in '81, and Bush in '01. Unfortunately, Obama rejected a proven track record by providing weak tax cuts (roughly $13 a week), huge spending increases, and more regulation, along with attacking businesses and the rich, which were almost the opposite policies of Reagan, and achieved almost the opposite results.

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Che is dead said...

TARP was a bad idea. And while the government may recover the portion of TARP funds used to prop up favored financial institutions, it will not recover all of the funds used to bail out the UAW. Most of that money is lost. Many people forget that TARP funds were forced on financial institutions that did not need or request them. The rest was used to save politically connected, or "too big to fail" institutions. In a rational world, those institutions would have been liquidated using the past savings and loan workout as a model. GM and Chrysler should have been forced into bankruptcy, their assets awarded to their creditors and bondholders and their union contracts declared null and void. That would have allowed them to restructure and emerge as more competitive and potentially profitable. The continuing existence of the UAW only insures that they will be at the threshold of insolvency once again in the near future.

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PeakTrader said...

Che, it wasn't just a few poorly managed banks or firms that had problems, it was a systemic problem that affected the U.S. financial industry.

How would you feel if the entire U.S. banking system failed, e.g. from a massive run on the banks, and the country fell into a deep depression?

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VangelV said...

"Many people assumed the $750 billion in TARP was a bad idea. However, the U.S. government will recover almost all the TARP funds (including interest)."

I doubt that the government will ever recover $750 billion of purchasing power back.

"There should've also been a $750 billion tax cut (or $5,000 for the 150 million workers at the time) to jolt the economy. U.S. households would've paid-down or paid-off high-interest rate debt first (e.g. credit cards), to increase their monthly incomes, and strengthen the banking system, and consumed the "excess" assets and goods, to spur production and maintain employment."

There should be no corporate or personal income tax. Period. To make the US strong again the government needs to cut 90% of its employees and repeal most laws that intervene in what should be voluntary transactions.

"U.S. households would've paid taxes instead of received unemployment benefits, from the higher level of employment, which would've resulted in lower budget deficits, and a higher level of output would've improved living standards."

You ignore the fact that when the local, state, and federal government use up $42 out of every $100 earned and when unfunded liabilities are more than 10 times GDP there is no way out but default.

"Significant tax cuts worked under Kennedy in '61, Reagan in '81, and Bush in '01."

Yes they did. But at that time government was a much smaller part of the economy and the US was a net lender. That is no longer the case. Today you need to cut taxes and gut the bureaucracy at the same time.

"Che, it wasn't just a few poorly managed banks or firms that had problems, it was a systemic problem that affected the U.S. financial industry.

How would you feel if the entire U.S. banking system failed, e.g. from a massive run on the banks, and the country fell into a deep depression?"

The system is a racked designed to transfer wealth from workers and savers to the hands of the banks. It should be ended, not bailed out.

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Che is dead said...

"... it was a systemic problem that affected the U.S. financial industry. How would you feel if the entire U.S. banking system failed ..."

Yeah, yeah, yeah. The world was coming to an end. I thought that the settlement of the CDS's associated with the Bear Stearns and Lehman Brothers bankruptcies was supposed to bring on the Apocalypse? There will always be people claiming that unless the taxpayer bails them out, it's all over for the rest of us. Bullshit. Once the government steps in the "run" is over, and the liquidation can begin. Where's Washington Mutual?

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PeakTrader said...

It seems, some people believe deep depressions once in a while are good for a country:

"The Panic of 1907 was a financial crisis that almost crippled the American economy. Major New York banks were on the verge of bankruptcy and there was no mechanism to rescue them until Morgan stepped in personally and took charge, resolving the crisis.

Treasury Secretary George B. Cortelyou earmarked $35 million of federal money to quell the storm but had no easy way to use it. Morgan now took personal charge, meeting with the nation's leading financiers in his New York mansion; he forced them to devise a plan to meet the crisis.

The crisis underscored the need for a powerful mechanism, and Morgan supported the move to create the Federal Reserve System."

The goal of the Fed is maintaining sustainable economic growth, through price stability, because economic boom-bust cycles are suboptimal, both in the boom and bust phases (which cause periods of strain or slack utilizing resources).

The Fed has improved smoothing-out both short-term and long-wave business cycles, since the Great Depression, which has raised living standards at a faster rate.

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