Is/Has the "bailout" worked?

[techs]

I would say yes. The bailout was designed to stop the dramatic losses in employment and massive corporate/bank failures, not to prevent the recession.
At the time of the bailout literally most of the major banks, and a large percentage of the smaller ones were all on the verge of failing. Most corporations were preparing massive pre-emptive layoffs.
There is a point in the economic spectrum where you have cascasde failure. The bailout was meant to protect this.
Without the bailout many banks would have failed, companies would have had massive layoffs and the stock market was going way downhill. Each of these events would in turn have cascaded. For instance massive layoffs would have caused a huge surge in mortgage failures, which would have cause more banks to fail, which would have dried up money for businesses to borrow for things like inventory, which would have led to retailer bankruptcies and layoffs, which would have led to more mortgage failures etc, etc.
In that regard, I would say the bailout prevented a "great depression"
As to the extent of the current recession will reach, I don't know. But it averted the panic.

 

[heyheybooboo]

We'll know more when the banks undergo a second 'stress test' - if they need more (and more) capital we won't be out of the woods.

And when are they going to set up the 'bad bank' for the 'toxics' to start moving off the books ??

 

[Slick5150]

I think its silly to ask the question at this point.

Wait a year. We'll start to know then.

 

[Genx87]

I think for what its purpose was(keep credit liquid to prevent a seizing in the credit markets and collapse of our economy) it worked as intended.

But we really dont know if it will hold long term. I am hearing commerical real estate is next on the implosion list.

 

[MovingTarget]

I think so. It has prevented a catastrophic collapse in the short term, but long term is another story. It is still a bit premature to tell...

 

[her209]

What happened to the toxic assets on the banks' balance sheets?

 

[StageLeft]

Until the economy is clearly recovering and on the upswing, which it clearly is not yet, it's absolutely unequivocally too early to say whether it has "worked" or merely pushed the problem further down the road. Far too early to be positive it has worked as intended.

 

[Mursilis]

Originally posted by: Skoorb
Until the economy is clearly recovering and on the upswing, which it clearly is not yet, it's absolutely unequivocally too early to say whether it has "worked" or merely pushed the problem further down the road. Far too early to be positive it has worked as intended.

Not to mention that we'll never have the ability to rewind the clock and see how events might've unfolded if the bailouts had never passed. Techs says:

Without the bailout many banks would have failed, companies would have had massive layoffs and the stock market was going way downhill. Each of these events would in turn have cascaded. For instance massive layoffs would have caused a huge surge in mortgage failures, which would have cause more banks to fail, which would have dried up money for businesses to borrow for things like inventory, which would have led to retailer bankruptcies and layoffs, which would have led to more mortgage failures etc, etc.
In that regard, I would say the bailout prevented a "great depression"
As to the extent of the current recession will reach, I don't know. But it averted the panic.

but basically, that's all speculation, and says nothing about the harm yet more deficit spending will bring us in the future.

 

[Budmantom]

Originally posted by: techs
I would say yes. The bailout was designed to stop the dramatic losses in employment and massive corporate/bank failures, not to prevent the recession.
At the time of the bailout literally most of the major banks, and a large percentage of the smaller ones were all on the verge of failing. Most corporations were preparing massive pre-emptive layoffs.
There is a point in the economic spectrum where you have cascasde failure. The bailout was meant to protect this.
Without the bailout many banks would have failed, companies would have had massive layoffs and the stock market was going way downhill. Each of these events would in turn have cascaded. For instance massive layoffs would have caused a huge surge in mortgage failures, which would have cause more banks to fail, which would have dried up money for businesses to borrow for things like inventory, which would have led to retailer bankruptcies and layoffs, which would have led to more mortgage failures etc, etc.
In that regard, I would say the bailout prevented a "great depression"
As to the extent of the current recession will reach, I don't know. But it averted the panic.

The car bailouts didn't work, if the car companies received substantially more money than they are worth(like the banks) and we propped them up for a few years would that equate to them succeeding?

Plenty of banks and lenders closed, and a few banks received multiple bailouts (I'm not sure that multiple bailouts = success), plenty of people in the mortgage industry were fired laid off. A lot of people would say the lending is still "frozen" I'm not sure I would agree but it's substantially harder than it was a few years ago.

As for the basic question it's hard to say because we don't know for certain what would of happened, I wouldn't mind banks that had poor lending practices fail. To get to the meat of the question will take some time to see what happens with the economy and how much it will cost in increased taxes.

 

[heyheybooboo]

Originally posted by: Genx87
I think for what its purpose was(keep credit liquid to prevent a seizing in the credit markets and collapse of our economy) it worked as intended.

But we really dont know if it will hold long term. I am hearing commerical real estate is next on the implosion list.

ba- BOOM !!!

:shocked:

 

[OCGuy]

You aint seen nuthin yet. Keep an eye on the dollar.



All the people that took taxpayer money to stay afloat for the last 5 months are still in trouble of losing their jobs.

Unless, of course, you think we should print money and keep them alive forever.

 

[PrinceofWands]

Hard to say, but I doubt if it will have long term benefits, only consequences. Unemployment is still creeping towards 20% in this area, and I haven't seen any substantial hiring anywhere to offset those who already lost their jobs. Might have temporarily bandaged the panicked rush towards collapse, but we'll see.

 

[Fern]

It's way too early to tell, the vast majority of the money hasn't even been disbursed yet.

I suspect the masssive amount of money earmarked for states may have helped them avoid layoffs at teh local level. But this really depends on how they allocated it and I think it's still too early to tell on that front too.

I do not belive that mnay 'smaller' banks were on the verge of failure. They don't own MBS's etc.; many don't even own home mortgages (they sold them immediately after making them). The commercial loans they do retain after making could be a problem in some geographic areas and/or lines of business (e.g., commercial loans to builders/construction companies). I see little the stimulus has accomplished, or was even designed to address, for businesses (other than asphalt sales/repaving/road & bridge construction).

We're still losing a lot of jobs, making proclmations of success ring hollow (unless you're a municipal gov worker).

It's to early to tell - all policy changes have negative (some anticipated, some not) as well as positive impacts; over time those will be revealed. What unanticipated problems will the negative consequences cause?

The (short & longer term) effects of the unprecidented huge increase in debt, the resulting drain from debt service and drain on capital from government borrowing should not be overlooked in any critique of the stimulus plan's success.

Fern

 

[HardcoreRobot]

check back in 25 years, thats about how long it takes to really see the consequences of an action, IMO
also, as someone else mentioned, no way to see how things would have unfolded had the bailout not passed. in a system as complex as the economy, all this means is that regardless of the outcome, both sides will claim they are right

 

[Phokus]

Wasn't there an article a month or two ago about how they were almost too late in bailing out the banks and there would have been a global catastrophe if they waited just a bit too much longer? This was some congressman revealing this meeting behind closed door meetings.

But yeah, i think allowing the free market to reign and just letting the liquidity freezing up would have basically been economic Armageddon for the entire world.

 

[Specop 007]

Originally posted by: OCguy
You aint seen nuthin yet. Keep an eye on the dollar.



All the people that took taxpayer money to stay afloat for the last 5 months are still in trouble of losing their jobs.

Unless, of course, you think we should print money and keep them alive forever.

This.

We may have stopped banks from closing the doors but pushed us into a situation where the money in those vaults is worthless.

 

[First]

The money denominated to the vast majority of the large private banks that failed has successfully pulled many of them (Wells Fargo, BOA, Citi, etc) back into the black. Whether they stay that way is another issue and hard to predict, but it's not unreasonable they will continue to pay back the bailouts ASAP. In that sense it was absolutely a success. The two bailouts passed by Congress on projects was part urgently-needed economic stimulus but also long-term stimulus, so we won't know for a couple years at least. Either way, those who opposed the bailout look stupid in either case.

 

[ZeGermans]

It's be pretty sweet if Geitner wasn't a tool of wall street. Overall they seem to be working but they could have been much more focused and better regulated.

 

[Stunt]

Unemployment went from 4% to 8%, unemployment benefits pay for a year or so.
Therefore the major layoffs started in late 2008 and will not have an effect on the economy for a year.
Remember 80% of the US economy is driven by consumer spending and if people run out of funds to support the debt they've accumulated; that's when the economy has a really rough time.

The bailout devalued the wealth of savers and people who hold assets and gave a break to those who hold debt and don't save.
Look out for a huge jump in inflation..

 

[First]

^ Inflation becomes less and less of a problem when velocity is increasing at an enormous pace in emerging markets all around the world. Foreigners continue to use our dollars to start business and make investments. You can't have inflation no matter how much you increase the money supply when a larger percentage of people are transacting in dollars across the globe. There are literally billions of people around the world that have untapped dollar transacting potential. When we trade with them we make it increasingly likely they'll use U.S. dollars. That's why inflation hasn't been a problem in a quarter century. Granted, 6% annual inflation at some temporary point in the future wouldn't shock me. But we won't be seeing 15-20% in all likelihood.

 

[GrGr]

Originally posted by: Evan
^ Inflation becomes less and less of a problem when velocity is increasing at an enormous pace in emerging markets all around the world. Foreigners continue to use our dollars to start business and make investments. You can't have inflation no matter how much you increase the money supply when a larger percentage of people are transacting in dollars across the globe. There are literally billions of people around the world that have untapped dollar transacting potential. When we trade with them we make it increasingly likely they'll use U.S. dollars. That's why inflation hasn't been a problem in a quarter century. Granted, 6% annual inflation at some temporary point in the future wouldn't shock me. But we won't be seeing 15-20% in all likelihood.

Heh, official 6% annual dollar inflation? And just where would the overseas holders of billions if not trillions of US dollars find return greater than the rate of inflation to protect their dollar holdings? Why on earth would they just sit by and let their dollar holding deflate in value simply because of US mismanagement of it's currency?

Everybody knows dollar inflation is next on the agenda, and you can be damn certain that nations like China is not going to simply sit by and let their dollar horde vanish through inflation. China has been very firm about that.

And just imagine what a mere 6% dollar inflation would do to the oil price. Oil would shoot through the roof in no time as naturally no exporting oil nation would want to be paid in a currency that is rapidly losing it's value. And a high oil price will of course sink the US economy again, just like it popped the housing bubble....

 

[charrison]

I am not sure the massive bailout was need and am quite certain the tarp money has not been used well, but it did keep the banks flush with money to lend.

THe auto bailout so far has been a complete disaster. Everything it was supposed to keep from happening is still happening. To big to fail is also big to prop up.

 

[Starbuck1975]

The bailout gave the perception that the government was doing "something" to solve the economic crisis, and perhaps prevented full panic and a 2nd Great Depression.

However, the bailout in and of itself is only a bandaid solution, and my fear is the negative ripples it will create for decades to come.

 

[aphex]

Originally posted by: Slick5150
I think its silly to ask the question at this point.

Wait a year. We'll start to know then.

Agreed. It's way too early to know what effects, positive or negative, the bailouts have had on the overall economy.

 

[First]

Originally posted by: GrGr

Heh, official 6% annual dollar inflation? And just where would the overseas holders of billions if not trillions of US dollars find return greater than the rate of inflation to protect their dollar holdings? Why on earth would they just sit by and let their dollar holding deflate in value simply because of US mismanagement of it's currency?

For one, the alternative to the dollar is...? Exactly. And two, you're exaggerating the downside of inflating your way out of debt. Limited annual inflation (closer to 2% and not 6%) has shown to be perfectly acceptable to U.S. business' expectations. It's when it becomes unpredictable and out of control that inflation is harmful. And of course, the even worse alternative is deflation which makes the debt burden even worse.

Everybody knows dollar inflation is next on the agenda, and you can be damn certain that nations like China is not going to simply sit by and let their dollar horde vanish through inflation. China has been very firm about that.

And again, what are they going to do about it? They're not going to dump T-bills because that's against their interest (literally).

And just imagine what a mere 6% dollar inflation would do to the oil price. Oil would shoot through the roof in no time as naturally no exporting oil nation would want to be paid in a currency that is rapidly losing it's value. And a high oil price will of course sink the US economy again, just like it popped the housing bubble....

Oil sunk U.S. economy? That's news.