Financial Bailout Plan: Respect Us The Taxpayers And Make Sure We Get Something In Return

Whenever a corporate bailout package is sold to “the people” the primary selling point is always that it’s “the best thing for the economy” , which is (in many ways) disingenuous and honest at the same time. Because while we all have a vested interest in maintaining a strong economy, it doesn’t change any of the following:

In many cases the taxpayer’s daily economic situation won’t change as a result of the bailout, all they’ve done is removed the risk of an economic downturn by taking on the risk of a failing/flailing company. In other words the taxpayer’s choices are: “pay for the bailout and keep things the same, or refuse to fund the bailout and risk an economic downturn”.

E.g. if the treasury buys $400 billion worth of bad mortgage securities tomorrow the banks will be better off, but many folks on Main St. won’t see their own situations improve one iota.

The taxpayer is effectively bailing out executives, companies, major shareholders (in some cases), etc, who will receive a disproportionate share of the benefits in comparison to the taxpayer, and who wouldn’t have suffered as much if the company had been allowed to fail and the economy did in fact suffer.

In instances where the government receives a return or profits from the money spent on the bailout, the funds are put back into the treasury and are not distributed back to the taxpayer in the form of a tax refund, dividend check, etc.

In short: tax payer dollars are used to fund bailouts based on the idea of the intangible benefits they will receive, whilst everyone else involves is allowed to reap the tangible benefits without having put any skin in the game. Case in point: the automakers spent millions on lobbyists to “encourage” Congress to approve a package of low cost loans for their industry, or to put it another way: “the automakers spent millions to encourage Congress to give them billions of dollars of our money”.

Perhaps the best way to explain the current bailout is as follows:

Banks are going to receive money from the taxpayer on terms that they would never agree to if they were lending money to us, as part of a scheme that will allegedly make it easier for us to be their customers.

Considering the above shouldn’t the banks have to give US as taxpayers something out of respect for the fact that we could potentially fork over as much as $7k per taxpayer to help them, especially since the help they’re going to be receiving from taxpayers is likely to enable them to generate profits for years (if not decades) into the future as a result?

For instance let’s say the government winds up forking over $X per taxpayer to Wall St., wouldn’t it be great if 0.5X of the debt a particular taxpayer owes banks participating in the plan would be forgiven? I.e. let’s say the plan costs $5k per taxpayer and Bank ABC participates in the plan, as a taxpayer I’m allowed to instruct Bank ABC to knock $2.5k off of my mortgage balance.

How about a bailout plan that issues warrants for an equivalent amount of shares of stock to each taxpayer, or to provide low cost loans to low income Americans? If taxpayer money is being used to rescue an insurance company how about forcing that company to provide low cost insurance to low income Americans?

In other words, if our politicians are right in that we have a vested interest in seeing Wall St. return to record profits in a few years, they should be working towards making sure we receive something for our investment in the economy’s future. Something beyond the usual promise of: “help these wealthy companies stay that way and the economy will be better”.

Disclosure: at the time of publishing the author didn’t own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn’t be viewed as financial or investment advice.

Subscribe by RSS Subscribe by Email