Stop me if you have heard this one. The President of the United States and all of the legislators decide to lessen the bad part of the business cycle. When the economy runs into tough sledding they simply agree to give money to the companies and industries that are having hard times to make sure that the hard times go away and the pain stops. The President is of one party and the legislators, who are in control of both the House of Representatives and the Senate are of the other party. Did we have to squeeze paltry sums of money out of this group? Not exactly. It flowed like beer at a fraternity party to the tune of over $8 trillion dollars including all of the guarantees. Well at least we got our economy back on track and things are good again. Whoops, that hasn't happened. In fact things are getting worse: more businesses are failing and unemployment is really growing. How could this be?
Mistakes, miscalculations and perhaps some plain old fashion foolishness. To make this as succinct as possible, I believe that most of the money was simply misspent. The glaring example was the TARP money, about $700 billion, which was to buy up troubled assets. Instead a large portion went into buying pieces of banks. The idea was to show that banks could lend their money to each other as well as consumers and businesses without worry because they were partially owned by the government. Strike One! Nobody seemed to care or notice and the credit markets barely budged. The part that sticks in my craw, and probably yours as well, are the earmarks which were needed to insure that Congress would even pass the bill creating the TARP. About $120 billion or so as reported by the media.
We loaned $80 billion to AIG, the world's largest insurer, and lo and behold it is up to about $150 billion. How did that happen? AIG was so excited they threw a very expensive party in a posh resort which the media caught and helped put "egg on their faces". We saved a few brokerage houses yet let Lehman Brothers go under. It was akin to kicking some one out of the life raft as the ship is sinking. Was Lehman chosen because Hank Paulson, the Secretary of Treasury, was the former head of Lehman's rival, Goldman Sachs? We even had a Senator start a run on the bank that initiated the beginning of this mess. Collectively, Strike two!
Roger Schlesinger's Mortgage Minute is heard on hundreds of radio stations and daily on the Hugh Hewitt radio show and Michael Medved shows. Roger interacts with his hosts and explores the complicated financial markets in order to enlighten his listeners and direct them along their own unique road to financial freedom.