The Bailouts Benefited Everyone, Not Just Bankers

From NYT: Bernie Sanders: To Rein In Wall Street, Fix the Fed

WALL STREET is still out of control. Seven years ago, the Federal Reserve and the Treasury Department bailed out the largest financial institutions in this country because they were considered too big to fail. But almost every one is bigger today than it was before the bailout. If any were to fail again, taxpayers could be on the hook for another bailout, perhaps a larger one this time.

To rein in Wall Street, we should begin by reforming the Federal Reserve, which oversees financial institutions and which uses monetary policy to maintain price stability and full employment. Unfortunately, an institution that was created to serve all Americans has been hijacked by the very bankers it regulates.

When the fed bailed out the banks, they, in essence, bailed out the most productive people. By throwing Wall St. a lifeline, the fed and congress sequestered the problem parts of the economy, allowing the healthier parts such as Web 2.0, retail, Silicon Valley, e-commerce, venture capitalism, and biotech to thrive instead of being dragged down by the ailing banking sector. That is something few understand – they think it was just bankers who got bailed out, but pretty much every productive person benefited at least indirectly from the bailout, which by 2011 finally turned a profit despite all the predictions in 2008-2009 of its failure.

Everyone wants to blame capitalism and Wall St., but pity the loser homeowner who thought it was a good idea to buy a 6,000 square-foot McMansion on $40,000 income with zero down.

Financial regulation is doomed to fail because you cannot regulate stupidity, but that doesn’t mean everyone has to suffer for the mistakes and stupidity of some, which is why bailouts have become an unavoidable part of modern capitalism. It’s like choosing the lesser of two evils: risk moral hazard or risk things getting worse?

Sanders also ignores how bank balance sheets are the healthiest they have ever been and that non-performing loans are at record lows, suggesting that banks have reformed their lending practices:

Credit scores for mortgage originations are rising:

Subprime lending has also collapsed, and mortgage debt is back to it’s long-run trend after a bubble in 2003-2008.

If any were to fail again, taxpayers could be on the hook for another bailout, perhaps a larger one this time.

While taxes did rise in 2013, it was not out of economic necessity, but rather due to gridlock and Obama’s refusal to compromise by cutting certain programs (for example, raising the Medicare eligibility and slowing increases in Social Security costs by reducing cost-of-living adjustments). The bailouts turned a profit by 2011, and by 2014 the treasury reported profits of $15 billion on TARP. Can the same be said for welfare programs like disability, Obamacare, free emergency room treatment, social security, and food stamps. I think not. Although some welfare is probably necessary to avoid disruption, it’s disingenuous for liberals to pretend to be looking out for taxpayers, yet simultaneously advocating policy that greatly adds to the deficit and produces negative long-term economic value. Welfare liberalism is reverse Darwinism: throwing more money at the losers of society while at the same time punishing the successful with higher taxes and more regulation. And then they wonder why the economy isn’t growing fast enough or not enough jobs are being created.

Liberals like Sanders think they are ‘saving’ mainstreet, looking out for our ‘best interests’ by attacking the fed, when in reality they advocate policy that would destroy wealth and punish the most successful and productive.

Related: Don’t Blame the Fed – Blame Stupid People, Liberalism, Democracy

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