In early October, congress passed a $700 billion bailout package, known as TARP, to purchase “toxic loans” from banks, in order to free up the credit markets, stabilize real estate prices and get the economy going again. It seems the plan has gone adrift and failed in its purpose.
It turns out most of the first $290 billion of the TARP was given to the country’s 9 largest banks with a smaller sum for regional institutions. These large institutions decided it was better to horde the money, strengthen their balance sheets and not to make loans. To make matters worse, some of these banks thought that paying dividends to their shareholders and bonuses to their employees was a far more important use of our money then to use the funds for loans as was agreed.
Clearly, these actions did not help stabilize real estate prices and only served to further undermine the credibility of an administration and treasury secretary that had barely any credibility to begin with.
On Friday, November 14, Mr. Kashkari, Goldman Sacks executive and bailout chief, spent the day defending the $150 billion government bailout for AIG, the insurance giant. AIG executives thought to use $550 million of the “emergency” loan for corporate “junkets” and executive bonuses. Mr. Kashkari stated, with a straight face, that AIG gave $550 million of tax payer money to their executives so the company wouldn’t lose the executives. I think the company would be better off without the executives who ran the company into the ground in the first place.
Now there is a debate on capitol hill to bailout the big three automakers. The auto makers claim they will go bankrupt if they do not receive a government loan. GM, Ford and Chrysler claim it is “legacy costs” and high employee wages that make the companies unable to compete with foreign rivals. Legacy costs are the benefits (healthcare and pensions) for the men and women who dedicate their lives to the success of these companies. Rep. Hensarling (R-Tex) and Sen. Shelby (R-Ala) argue against any assistance for the automakers mainly because of the legacy costs and the wages and benefits paid to employees. The congressmen stated they do not want to bailout the unions, which can only mean they do not support the working people of this country.
How can anyone argue against fair wages, pensions and healthcare? After all, it is these benefits that attract and keep good employees, improve productivity and are extremely important for a vibrant and successful economy. Even, Henry Ford believed that his employees should earn enough to be able to afford the products they make. Without dedicated hardworking employees, there would not be a GM, Ford, or any other company.
Much like many of the troubled financial institutions, the American automakers were mismanaged, shortsighted and failed to manage risk. The automakers failed to produce fuel efficient autos (GM killed the EV and bought Hummer), built vehicles for short term profit and not long term sustainability and had such poor product lines that people stopped buying their products. It is the top executives that bear the responsibility for these missteps and failures, not the production people.
Usually, I am not one to advocate government bailouts. However, I do believe bold steps need to be taken to jump start the economy. We must provide funds for entrepreneurs, workers and homeowners to stabilize the economy. We need to inject funds into local and regional institutions and small companies to create employment. We must stop the bailouts for poorly run companies and the politically well connected and provide real support for the honest hardworking people of this country.
The TARP funds should be used to purchase REO portfolios from local and regional banks in hard hit areas, not bailout the national behemoths. Acquiring the actual real estate asset will lower the number of houses on the market, infuse capital into the banks that actually lend in their communities and stop the downward slide of housing prices. Only by investing in our economy, creating employment and building consumer confidence can right the economy and start back on the road to prosperity.