The Bailouts of 2008 – What’s the Cost?

capital building washington d c

capital building washington d c

In a previous post, The Bail-Out – Who’s Being Bailed Out & Who’s Bailing Out!?!, the $700B government bailout of financial institutions was discussed. Unfortunately as expected, this has proven to be a fiasco.

The Emergency Economic Stabilization Act of 2008 was supposed to buy up distressed assets of financial institutions with the overall effect of banks having more liquidity to therefore originate mortgage loans.

There were also several other provisions of this bill which have failed miserably. Many financial institutions have been given money under The Bailout Plan, but instead of seeing this money enter the mortgage market, we’re seeing them purchasing other financial institutions. In the long-term what this is creating are mega financial institutions that we will have to bailout in the future, because if any of them failed it would be devastating to the economy. Even insurance companies are trying to get a piece of the pie by purchasing financial institutions (Insurers find path to bailout billions). This is not in the best interest of us – the people.

The Hope for Homeowners Program was supposed to assist at risk homeowners avoid default and therefore foreclosure. The program is voluntary to the lending institutions and has also proved to be a miserable failure.

One other aspect of the bill that needs to be discussed is the grant money being given to cities to purchase properties; fix them up and then resell them under the Neighborhood Stabilization Program. The City of Orlando is getting $6.7M and is planning on purchasing 20 homes to be resold and then be a landlord for another 11 homes. As nice as this appears, how much dent do you think this will put in a market where there are a total of 11,414 residential properties for sale with 4,557 in some stage of foreclosure?

bank and drive-thru

bank and drive-thru

Again, all this money could have been better spent. Is it increasing Consumer Confidence? Most likely with very little if any effect. So is this $700B bailout assisting you and I – the taxpayers? Unfortunately, not!!

This brings me to the Automaker’s Bailout that is being bantered around Congress. You may at this point think that I am against a bailout of sorts for the auto industry. Don’t get me wrong, they dug their way into this mess, but the overall implications of failure for the American auto industry are quite far reaching.

The Unemployment Rate has been rising consistently and currently numbers over 10 million people out of work. A collapse of the auto industry will add several more million to those roles. Presently, we are fighting a recession. With a failure of the auto industry we would surely be pushing ourselves toward a longer induced depression. We simply can’t afford this. We’d only be cutting off our nose to spite our face.

Hopefully, our government is learning its lessons by the failure of the Emergency Economic Stabilization Act of 2008. Unfortunately, I’m concerned that they won’t help the auto industry due to that fiasco that they created. If they would only learn that you just can’t throw money at a problem and expect it to resolve itself. There needs to be safeguards in place. There need to be concessions made by all parties. There needs to be simple common sense.

automobile dealership sales lot in lake mary seminole county florida

automobile dealership sales lot

I believe in labor unions as they took very good care of my family while growing up. But when the UAW (United Auto Workers) comes out and states that they oppose concessions, then I have a major issue with that. Let’s go back to the Chrysler rescue of 1979 – that worked!! The reason that worked is because there were concessions on all sides – labor, management and investors.

Again, I am not denying what the auto industry did, but so did the financial institutions as well. These fiascos didn’t just happen. They occurred because of greed and mismanagement.

We are dealing with a faltering economy that is teetering on the brink of disaster. We need level heads and sound judgment to bring us out of this miasma.

Till next time…Marc It Sold!

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