Give money to banks or the people? Economists need to debate.

[European Socialist]

President Obama said today that the reason we bail out the banks is so they can lend money in a leveraged way that helps the economy. I think giving money to the people creates a multiplier effect as it trickles up, and you are not rewarding the people who caused the problem. Anyway, I'm glad to see Obama give this speech even though it's several months late.

[DJ13]

1. Agreed

If they had given a trillion to households instead of the banks much of that money would have gone to the banks anyway as people paid down (or off) their debts.

The "debt crisis" would have been alleviated, consumers would have freed up income that could be spent in the economy, and the derivatives underlying the debts would have been removed as a source of contention on the books of the banks.

It sure would have beaten the lack of results weve seen from throwing the money directly at the banks.

[Chulanowa]

3. But it wouldn't have resulted in bank profits

Banks make money off of debt. The last thing in the world any bank or lender wants is for their borrowers to pay off those debts.

[DJ13]

4. The tradeoff would be bank profits for a reduction in derivatives

Banks arent facing a profit crisis, they're facing a derivatives pricing crisis.

For every loan that would have been paid off they would have significantly reduced their exposure to the underlying derivatives.

That would have been a better solution for everyone, the banks would have lowered their toxic assets, the borrowers would have reduced their stifling debt burden, and the overall economy wouldnt have seized up from consumers who couldnt spend money due to their personal debts being so high.

[Chulanowa]

5. I didn't say they were facing a profit crisis

Obviously they're not. But these institutions will fuck us until we're bleeding and raw if it can squeeze another cent out of us.

Of course applying money to the public at large would have fixed all this in an instant. There's no doubt. What I'm saying is that it would not have resulted in filthy rich bankers and lenders, and thus that solution could not be allowed, either by the lobby, or by the politicians that answer to that lobby.

[DJ13]

6. On that I'll agree

[notesdev]

7. And the first thing the country needs

is to pay down debt.

Some scary reading if you are not convinced of the point:
http://market-ticker.org/archives/957-Mr.-President,-Open-The-Other-Eye!.html


So if the banks want more debt out there, so they can make money, that puts them in the position of being the enemies of the nation.

Not a good position to be in, IMHO, especially with the anger level rising broadly and rapidly as more and more people discover just how ruthlessly and blatantly we are being stolen from.

[Mr. Hyde]

8. The banks can lend out 90 cents for every dollar of deposits they hold too.

that's 90 cents at interest of course. Of course, the privately held debt in this country is what's keeping things from moving in the first place. Trying to solve this problem by making more debt available is like trying to save a drowing man by throwing a cinder block at him. They should have printed a couple of trillion dollars to ease the deflation and then given it to Americans to pay off their debts. Having failed to do that, they should provide tax breaks to anyone paying off debts in the form of an IRA type of affair whereby pretax money may be applied to debt reduction up to a maximum of course and only on debts existing prior to passage of the legislation. If not that, then IRA money ought to be able to be applied to those same debts without any penalty or taxation. If they were serious about fixing this thing, they would do something radical along these lines but, instead, they have propped up fractional reserve banking and have made the rich richer and the poor poorer as usual.

[Captain Hilts]

2. I agree with this, though to aid industry first was

Hoover's approach. The Reconstruction Finance Corp. was created by Hoover to get financial aid to industries. There's a logic to it. It's also what Boris Yeltsin did.

FDR focused on aid to individuals so they wouldn't be tied to moribund industries.

I think it's a logical step for the president to take, but he's got to keep an eye on making sure banks start lending and stop raising fees on the people who financed the bailout.