Bailouts - a different option

Australia
December 12, 2008 6:42am CST
I don't know if anyone else has suggested this, I certainly haven't seen it if they have. There is obviously a lot of opposition in the US to government bailouts of major corporations, and I usually chime in with the sad facts that dislike it as we may, allowing the companies to go broke is worse. So, a suggestion. Oddly I suspect that a lot of the right side of politics will not like this an awful lot more, but it beats a lot of the objections to bailing out the companies. Spend the money instead on bailing out the sacked workers. My understanding is that in the US, unemployment benefits are cut off pretty quickly, which in cases of major unemployment leaves a lot of people in danger of losing homes and all the rest of the horrible things that can happen. So, set a %age for an acceptable level of unemployment, say 5% just for an example, and once the unemployment rate goes over that, extend unemployment benefits indefinitely until it drops below that figure, then return to the current status quo. I would also suggest increasing the benefits, but that will probably cause a furore. I suspect it won't cost a lot more than the bailouts, if that much, and has the benefit of stimulating the economy, because people with no income can't spend. There would probably need to be other measures attached, like retraining programs, and perhaps even low interest/delayed repayment loans to the unemployed for small businesses subject to acceptable business plans and credit ratings, and perhaps even a temporary free medical plan for the duration of the emergency, since most of these people, I gather, will lose their medical insurance. What do we think?
1 person likes this
6 responses
@spalladino (17925)
• United States
12 Dec 08
I like your idea and, the reason Washington didn't think of it, is because it makes sense. The bailouts of the banks did nothing to free up credit. Now we're expected to bail out the auto industry but I heard a report yesterday on our local news that you need a credit score of 780 *or more* in order to finance a new vehicle right now. A perfect score is 800, by the way. So, sure, bail out the auto industry but the majority of the regular folks who still have jobs won't be able to get financing to buy one so they will still be headed full speed ahead towards going out of business. I also agree that unemployment benefits need to be extended for as long as there is a true need. I recently joined the ranks of the unemployed so, for the first time in decades, I am without medical insurance.
3 people like this
• Australia
13 Dec 08
Well someone above informs me that the government has temporarily extended unemployment benefits twice in the last year or so, but in this crisis we are probably looking at an ongoing three or four years while the economy adjusts. In Australia, the unemployed have free medical treatment and very cheap pharmaceuticals, as well as unlimited time on unemployment (with some conditions), so a collapse here, while very hurtful, does not condemn Australian workers to total poverty. And we somehow manage to pay for all this while running at a surplus. It can be done, if the ideological BS doesn't get in the way. Lash
1 person likes this
@sharra1 (6342)
• Australia
13 Dec 08
Good point. Governments do not like doing things that are sensible. Right wing governments hate doing anything to help the peasants, ooh sorry voters for the other party, and all their rich mates are begging for handouts. So they give it to the rich mates as no matter what happens to the economy at least they have made sure their friends are ok. (Oh dear I can be so cynical where politics is concerned).
@jonesy123 (3950)
• United States
12 Dec 08
If they would have distributed all that bailout money to the people not the companies, it would have been more stimulating for the economy and the banks and car makers wouldn't be in trouble anymore. I calculated that just form the original bank bailout of $700 million my family's portion is around $11k. Now our share would have gone to the bank in terms of paying off some debt and putting some money into savings/CDs/college funds. We also probably could have afforded to buy a new car within the next two years as one of ours is ten years old. I'm sure that other people would have made similar decisions and also bought some extras, not just bare necessities. Instead us little guys now have to pay the price in terms of lower wages/salaries. My husband got a 1% increase which most likely will be taken away now because the place he works for will require each employee to take a three day furlough. Gone is the 1% and a bit more actually. He has gotten minimal increases in the last seven years. All below cost of living anyway. In essence the buying power of his salary is quite a bit less than seven years ago. But as it is, the big guys get to party with our money and the little guys like us foot the bill, as usual. Nothing changes! They will have to extend unemployment benefits in this crisis. But I'm sure those people would rather have kept their jobs and gotten some extra money on top of that from the government. Everybody would have been better off than what has happened now.
2 people like this
• Australia
13 Dec 08
At a rough estimate, the US might have 50 million familes, and at 11k that would mean some 550 trillion dollars hand out. I find your maths a fraction suspect. At 11k, the 700 million would help out about 63,000 families only. Lash
1 person likes this
@jonesy123 (3950)
• United States
13 Dec 08
Excuse my misspelling, I meant $700 billion. We have approximately 290 million people here in the US (no misspelling this time). That would be per capita approximately $2,500. For a household of five (that's why said for my family) that would be at least $11k, maybe more. Even with your estimate of 50 million households, it's only $550 billion, not trillion. Which would put it well below the bailout level.
• Australia
13 Dec 08
Ooops, must have added an extra 3 zeros somewhere. But does a one-off payment really help all that much? A lot of people will blow it, which is surely there own lookout from one perspective, but since a bailout of this kind has an underlying paternalism about it anyway, worrying about them wasting it could be seen as a valid issue. The idea of extending that money to those in need over the period of their need would probably cost even less in the long run. Your way gives those fat cats the same benefit as the workers they have sacked. Lash
@xfahctor (14128)
• Lancaster, New Hampshire
12 Dec 08
Well lash, I am actualy in agreament with you, in that if we're going to be be devestating our dollar, we may as well at least be giving it to the people instead of to the banks to buy forign banks or auto makers to placate unions. Unemployment benefits are administered at the state level. There have however, already been 2 federal extensions to unemployment benefits this year, though the benefit ammount has remianed the same. If we're going to be doing this, we may as well though, give it to the people and i supose unemployemnt makes as much sense as any other way to do it. My issue with this whole bailout thing though and it is being largely missed and not talked about, is that the bail out aspect is only the smoke and mirrors in all this and is only a by-product. It wasn't a bail out, it was a power grab. An ilegal and unconstitutional power grab.
1 person likes this
• Australia
13 Dec 08
Not being American, and besides being very much what Americans label "liberal", I have some difficulty in understanding your concern with the power grab, because I don't know enough about your system to either agree or disagree with you. Australia has always alternated it's political power between a party more or less like your Republican party, and a mildly socialist party which over the past 25 years has drifted right to where it pretty much equates with your Democrats. For us this sort of financial management by government is normal, whichever party is in power, but it's far more likely to be Labour which would introduce something like what I suggest here. Our unemployment benefit has no time restriction at all, as long as you can prove that you have been actively seeking work, so this issue simply wouldn't come up here. It is also indexed quarterly to the CPI. It's fairly strictly enforced, especially over the past fifteen years, so it's not all that easy to "rort" the system, but it does give Australian workers a safety net that avoids the spectre of homelessness. Workers in the currently troubled areas, especially finance, are in difficulty, as the banks and financial institutions have sacked thousands of workers, many of whom took on unrealistic mortgages on the basis that their overpaid jobs would last forever, so house prices are falling in a buyer's market, at least at the top end of the scale. But on the whole, even if our own car industry goes down, and it is struggling, the workers will have some support for as long as needed. Lash
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@xfahctor (14128)
• Lancaster, New Hampshire
13 Dec 08
T.A.R.P. is a very long and complicated bill, some 400 pages plus. It essentialy and somewhat shadowy way, transfered a great deal of control over our monetary system to even fewer people and with no oversight, or control. Further, it is a constitutional issue, and we already have enough constitutional issues with the federal reserve, the creation of which is a lot of why our dollar is shytye now and our economy is colapsing, taking the worlds with it. by our constitution, only congress is suposed to have the power over money, for the reason that congress is a direct represenative of the people, s one of the 3 main branches of the constitution. this act, created a 4th not described in the constitution as well, with none of the checks contained in the constitution to control it. This is something not realized by a scary number of people in this country. there are proper and legal ways of amending the constitution, it is a process that requires a large number of states each to vote in referendum as well as other processes. there is a reason no one saught to try and ammend the constitution with this, because they knew it would never pass, the screaming for the heads of congress over this was nearly unprecedented and it was passed through strong arming and out right threats, including threats of martial law, no I'm not exagerating, that is exactly what I meant. the contistution works and the government and country function beautifully under it when followed. the problems here aren't problems with our constitution, but problems we seem to have remembering it exists. this document is pretty sacred to us, so we get real touchy about fooling with it. We get real touchy when the government grabs power and control from us and especialy so when they circumvent the constitution to do so.
• United States
13 Dec 08
Very well said, X, as usual! Lash, I am surprised I agree with you too, in the same way X did. To be honest, I think if the government just sent every single person in the US a big fat check, and be done with it, it would do as much or more to help the economy at this point. And I thought all that haggling and those meetings before the bailout bill was passed was for the express purpose of putting controls, accountability, etc, over the whole thing. Then it gets passed, and interestingly, there seems to be no oversight whatsoever, no help for the people, and the banks are off investing in each other, in failing banks, and in foreign banks, while our economy stagnates. I have more sympathy and more interest in helping the car manufacturers than the banks, just because of all the jobs it will affect and also because of the government interventions in the auto industry, with powerful beyond belief unions and weird laws that make it very hard for the Detroit auto makers to run their businesses properly. That said, I also hold those companies responsible for their situation as well. The banks, the mortgage fiasco, I feel the government, people like Barney Frank, did not help when they could have seen it and stopped it, but basically I think the banks did it to themselves, and I would rather see them go down, and let the smaller banks that did not participate in such practices fill in the gaps. And again, help the people who I think were often duped and didn't understand all that they were doing or getting into, and even didn't really understand that they couldn't afford the houses they were buying. Anyway, it is a mess, and it is very scary. That these banks basically stole 350 billion from us and thumbed their noses at us. They raised such a fuss over the private jets of the auto makers -- which I agree they shouldn't even have at this point -- but not one lawmaker has tried to go after AIG and the others for the insane parties and trips! So, they keep saying that our government basically owns a major portion of the banking industry, but so far I have not seen that the govt owns anything. It appears as if they just handed them the money and let them off the hook.
@sharra1 (6342)
• Australia
13 Dec 08
Well this makes sense to me. Mind you I think they should have a system like ours. It is well policed so it makes it hard for people to be bludgers. I should know as I have been on it for 2 years and they make it hard. They also provide good assistance to help people get back into the workforce which is so necessary if you have been out of it for a while. Bailing out big companies just lines the pocket of the rich guys who run it and they go on getting paid millions while people starve. It is just so wrong. I like the idea of low interest or delayed payment loans and training to help people start up their own businesses. I know they will not do any of this because they label giving money to the poor as socialism and that is evil but they think that giving money to the millionaires is ok and that is just being supportive to business. What is wrong with them?
• Australia
13 Dec 08
I'm glad you picked up on the loan suggestion, as I feel this could be a very constructive solution to some elements of the crisis. In the East there is an institution called the Grameen Bank, which lends very small amounts of money (by Western standards) to women (men tend to spend it on luxuries) in places like Bangladesh, where it started, and India, money which is used to set these women up in small cottage industries. The loans are charged interest at the industry standard rate. A village will form a Grameen group, the group itself decides who gets a loan, and also ensures, through social pressure, that the loan is repaid. The flow-on when several women in the village are producing necessary things for local use is enormous. The bank has a repayment record better than Chase Manhattan at its best. My suggestion takes that a little further, and certainly accomodations would need to be made for Western circumstances, but I suspect that on this bigger scale it could provide significant local economic stimulus, keeping the money created within local communities in the main. Lash
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@sharra1 (6342)
• Australia
13 Dec 08
Ah but that only loans small amounts. Our banks will not even consider small amounts. They want to loan big and then they get upset when people cannot pay it back. Also our banks will not lend to people on unemployment benefits as they see us as having no income as it can be taken away so easily. This would need to be changed. You would need a bank that is willing to lend small amounts and willing to lend to people who are out of a job.
@Pitgull (1523)
• United States
12 Dec 08
If NONE of these companies experience any negative downfall from their actions, will they ever learn? Will they ever operate they way the people request or desire...chances are no... These companies should go under. Maybe temporarily it would have a bad effect on the people, but in the long run? Who wins? This is America, and this is life, sometimes it is not easy to do what is right, but sometimes it is the only way... When you over spend or make careless investments, does someone step in and offer you 15 billion dollars? I didn't think so. Bought and paid for by the American people? Doesn't work for me. Let us keep our money, and let nature take its course....If a business was meant to fail, it was meant to fail...no matter how large it has become...Bad policies cannot hold a company together...even if more money is given...
• Australia
13 Dec 08
Well all that is possibly so, but this discussion already accepts that and looks toward a solution, not a recapitulation of the ideological sttitudes. Lash
1 person likes this
@livewyre (2455)
20 Dec 08
Just throwing money after an industry that is on its' last legs because of what it represents (NOT because of recession) is little short of lunacy - In the UK, they are considering a £1bn bailout of Jaguar-Land Rover which is actually owned by an Indian company!! http://www.thecreditcruncher.com/2008/12/billions-set-aside-for-car-industry.html There are a number of pigeons coming home to roost for the car industry: 1) It does not make sustainable economic to produce the amount of cars that we do. 2) It does not make environmental sense to manufacture these cars that use us the worlds finite fossil fuel resources (that is they probably weren't finite until the introduction of the motor car). Until we re-think out love of the motor car, and the fact that manufacturers have so many politicians in their pockets, we are not really putting this situation in a proper logical perspective. It makes so much more sense to use the bailout money to create employment opportunities and I would like to think there's a possibility that Obama will be able to put the brake on the bailouts and start thinking along the lines that you have expressed. From what I have read he is not as 'on board' with the bailouts, but I guess once the loans have been put in place, it will be more or less impossible for him to claw them back. Personally I would not have bailed out the banks either, when you make a mistake in the free market you are supposed to pay for that mistake with your own cash or livelihood - not with tax payers money. I would like to see the assets of the Directors of every failing bank sequestered and have them explain their earnings for the last seven years (seven seems like a good number...). Then I would give them back a 'reasonable' proportion in line with what 'normal' people earn - using the rest to pay back the taxpayers for any bailouts needed. Let's do the same with the auto manufacturer Directors reclaim some of the crazy bonuses and get their ex-employees into new sustainable jobs.