Bailout or Stimulus?

Living through history, it’s sometimes difficult to grasp the importance of big events. As tragic as 9/11 was in 2001, it was hard to imagine the U.S. jumping into a global war against terrorism – at least not that day. As events unfolded in subsequent weeks, it became more obvious there would be a coordinated military response. Such may be the case with the bailout.

Historic Legislation Passed on Friday

On Friday, the U.S. government made history by passing legislation to purchase bank debts that could not be sold. It was the biggest act of bank socialization since the Great Depression. Historians will eventually determine the importance of event, but October 3, 2008, could go down as the free market’s 9/11.

As the dust settles, the question remains: was it an economic stimulus package or a Wall Street bailout? Did our Congress, President, and Treasury Secretary initiate purchases of troubled securities in order to prop up the economy or to simply bailout the banks?

Bailout Hard to Deny

At the very least, it was a bailout. The U.S. government has authorized you, Mr. Taxpayer, to purchase securities that they, the banks, can no longer sell. The mainstream media got this one right. Despite efforts to the contrary, I continue to see this legislation reported as a ‘bailout’. Most voters think the same thing. In a CNN/Opinion Research Corp. poll, 53% (of Americans) saw the bill as mostly a bailout for Wall Street.” They’re right.

On the other hand, it could also be an economic stimulus. It is possible that this money will stimulate the economy thus fulfilling the promises of the politicians who passed it. Time will tell. Right now it doesn’t look promising. The S&P 500 is down -14.5% since last Tuesday.

Wall Street Smelling Like Roses?

At present, it’s difficult to assign blame in this fiasco. The financial market is a complicated system. Facts will emerge in the coming weeks and more politicians will continue disparaging each other during the election season. Whatever the drama, big banks are still standing.

Not surprising, Goldman Sachs Group (GS) is getting the best of the bailout. According to Marketwatch, “if we were to begin the long journey back to stability today, Goldman would undoubtedly emerge even more powerful than before.” Did we expect anything less? Keep in mind, this company’s former CEO is the Treasury Secretary who engineered the bailout. These guys remember where they came from. Bailout or no, Goldman and Company will do just fine.

The U.S. taxpayer is another story.

photo credit: reubenaingber