bank rates

Economy Stimulus Plan a Taxpayer-Funded Bank Bailout in Disguise!

Bush’s economic stimulus plan consisted of three points.

  • 1. $600 tax rebates to low to middle income Americans.
  • 2. Revised tax deduction expenses for small businesses to stimulate entrepreneurship.
  • 3. Doubled the loan limit of mortgages that qualify to be acquired by government organizations, Fannie Mae & Freddie Mac. (the media rarely discusses this point!!)

I have problems accepting #1 and #3. The government and the media market this plan as a means to boost consumer confidence. However, these laws seem to benefit banks more than the overall economy.

Tax Rebates Bail out Overlent Banks
As we saw in Bankaholic’s “How are you spending YOUR stimilus check?” poll, most Americans are saving their money or paying off debt.

The US government will be sending out over $110 billion dollars worth of tax rebates, but most of this money will ultimately find its way to banks.

Where does money that you save go? …to your bank account!

Where does money for paying loans go? …to the bank that lent it to you!

and finally… Where does money you SPEND on shopping sprees go? …to the bank accounts of the companies that sold you stuff!

As we all know, the current credit crunch is caused by lenders who have lent out significantly more than they really have. All the money that the government is giving away eventually finds it way into the vaults of nearly-insolvent, greedy banks… either that or to China to import the latest iPod to America.

It gets worse though…

Increased Lending Limits for Fannie Mae Lead to Tax Payer Bailout
SF Gate summarizes this situation the best:

“Crane said: The proposal would allow Fannie Mae and Freddie Mac to buy loans up to 125 percent of an area’s median home value – up to $729,750 – well above their current $417,000 limit.

Fannie and Freddie are government-sponsored entities that inject liquidity into the mortgage market by purchasing loans and then either keeping them or packaging them into securities sold to investors – with a guarantee in case they default.

This means that Fannie Mae will be buying up a lot of bad, high risk mortgages—some of which will inevitably default! Who will be paying for those bad loans? …the taxpayers! Future generations of Americans will be paying for the reckless mistakes of irresponsible lenders.

What do you think?

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Comments (27)
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  1. Larry said:
    on June 27th at 05:44 pm

    I think you’re right on Wu! Our future generations are going to have to pay for the bailouts with higher taxes. So, who to vote for? Obama or McCain? I wish we had a viable Multi-party system where we might elect another candidate who cared about our kid’s futures.

  2. John said:
    on June 27th at 08:26 pm

    Although I believe you are absolutely correct to say that the bank will be getting the majority of the money. But isn’t that what we want to do? May be I am over simplifying it, but the causes of our current economic issues is because of the banks lending so much that many people can’t pay back, and banks are squeezed for money. By having injection money back into the banking capital, though doesn’t solve the fundamental problem of sub par lending practice, it does bring some rigor back from the banking industry?

    Again, I am no expert, and would love to hear people’s opinions.

  3. Concerned American said:
    on June 27th at 09:08 pm

    I’m no expert either, but bailing out banks just gives them an excuse to continue irresponsible lending practices. What we need is a total reform on the banking system.

    1) Remove the fractional reserve system
    2) Kill the derivatives market, this will take out a lot of the speculative pressures on the markets.
    3) STOP GOVERNMENT INTERVENTION!! This is supposed to be a free market! Let banks fail, let bad businesses go bust!

  4. Larry said:
    on June 27th at 09:58 pm

    We agree on #3. Problem may be most of us don’t what you’re talking about with #1 and #2 solutions.

  5. J. Wu said:
    on June 27th at 10:41 pm

    What sucks about #1 is that when the government gives everyone $600, they are driving up inflation. Prices will just rise to equilibrium with the increased money supply (M2).

  6. Drake said:
    on June 28th at 04:52 am

    It’s a bit over my head as well.

    However, I wouldn’t have said “most Americans are saving” as I don’t think a poll on a banking blog is a good sample of Americans in general when it comes to how they spend money.

    I agree with John in that it benefiting banks isn’t inherently a bad thing. If increasingly bad lending practices is the only problem, I’d have to see some data to say it’s big enough a concern.

  7. John said:
    on June 28th at 06:36 pm

    “What sucks about #1 is that when the government gives everyone $600, they are driving up inflation. Prices will just rise to equilibrium with the increased money supply (M2).”

    That is true, but it is based upon the fact that most people are going spend that money on consumer products. This might be naive, but I hope that most people will use that money to drive down their debt, such as mortgage, as such might not cause the inflation woos that we are worrying about.

    Then again, with the current inflated price of basic necessity, I begin to doubt most people had the sense to spend that money wisely. Which is the clutches of free market, true we as conscious consumer has the sense to do the right thing, but no everyone does.

  8. medray said:
    on June 28th at 10:39 pm

    I think stimulus plan, social security, medicare, 401k are all bull. Americans have nothing but debt, and the aging baby boomers are gonna bankrupt the whole country. This is why I invest all my money in other countries.

  9. Richkab said:
    on June 29th at 05:15 am

    I agree totally with Wu, but would like to add that easier Ben messed up by lowering interest rates so much and printing up 200 billion to loan to banks and accept worthless bonds as collateral. Inflation anyone?

  10. ElectroGeek said:
    on June 30th at 07:44 pm

    Wu I have to agree with you. Let’s also not forget that U.S. monetary system was designed and run by bankers, not the U.S. government. Under the current monetary system the U.S. can never get out of debt. Ever. Period. These stimulus payments are not helping anyone in the long term. The fed reserve and IRS and flawed organizations that will eventually fail. Some consider them illegal and feel they should be abolished. Watch the original zeit geist video on youtube for further info.

  11. Everyday Finance said:
    on June 30th at 08:41 pm

    My prediction:
    The economic data will look good enough in a couple months for the Fed to start raising rates to fight inflation, but this will have been due to false consumer spending numbers from this irresponsible stimulus. When the checks are spent, a new hole in consumer spending will appear at the same time rates are increased, sending the US further into recession.

    Time to start hedging, buying commodities and stay conservative short term.

  12. suy said:
    on July 1st at 09:58 pm

    hello,every one can you guys help or give a comment about indynac bank. i have a cd and it will not expire until next year.if the bank close what will happen to my cd?is the fdic will come or covered the lose?is indymac almost the same situation as wamu bank?thanks

  13. Jeanne said:
    on July 2nd at 09:33 pm

    Mortgage companies got involved in some creative financing and enticed unsuspecting consumers to jump on the bandwagon. This demand for new housing drove the cost of housing to unrealistic higher prices. The new houses purchased during this period (when Real Estate Agents and Mortgage companies convinced John and Jane Q Public that this was the ultimate solution to get the house of their dreams), are now being appraised at a fraction of what the consumers paid for them. It is another form of “Enronism” (smoke and mirrors – creative bookkeeping) that allowed big business to do it to the middleclass people of this country again. Those consumers may have had a chance of becoming financially solvent some time during their lifetime. Now they can look forward to having their credit ruined, if they default on the loan, or being tied to a astronomical house payment with no hopes of ever making a profit when they decide to sell their house.

    When the US was attacked in 2001, it was very clearly stated that we are too trusting of a society. Pretty sad, but this again demonstrates the naivety of our fellow countrymen/women and that we should not even trust professionals that should be protecting the companies they represent and the customers they are servicing. Think of all the real estate commissions that were paid and all the mortage finders fees, all the “fees” that were collected when mortgages were refinanced. I compare it to blood money…….and am glad I am not part of those professions.

    Remember, it it sounds too good to be true…..it usually is. Now we have to apply that thinking not only to shysters, but to professionals that should be looking out for our best interests. Being skeptical is not flattering, but it may save you some $$ over the long run. Sad day in the US when our own government turns a blind eye and allows the citizens to be taken advantage of. I guess it is all in the name of GREED.

  14. leslie said:
    on July 5th at 06:52 pm

    the 17-24 age group who are declared as dependents because of being in school or colleges got zero…..and their parents received zero for them…(even tho those 17-24 year olds were earning income and paying taxes)…….Will that make them disenfranchised voters in the future for being excluded in this “economic stimulus”????

  15. Bobbie "female" said:
    on July 9th at 12:24 am

    Okay well I’m no banker, but I do know that Banks are in it to make money. Some think that their nice nest of 100,000 is just sitting there in their private bank earning that interest of a nominal amount. When in truth the Bank has lent that money out to whomever where ever to make a larger return on YOUR funds…and merely give you a minor amount of what they’ve earned. Again they are in banking to make money. But what truly Sucks is that our Gov. is attempting to fool it’s people by “Giving” those stimulus funds in hopes it will boost the economy. I for one, paid off a credit card and closed that account. This Economy is going to the compost and people had best start paying things off and stashing their funds neatly away for when it all comes crashing down they’ll at least have something to carry them for awhile.. God Bless America

  16. Jet Ly said:
    on July 10th at 04:13 pm

    The banks and federal reserve are in control of this country. Every thing they do is in their best interest and part of the “good ole boys club”. Don’t think so, read this article.. The whole bear sterns’ and banking bailout is a sham..

    http://www.oneworldincome.com/2008/03/27/bear-stearns-bailout-by-the-fed-and-jp-morgan-a-century-old-conspiracy/

  17. Mr Economy said:
    on July 14th at 10:36 pm

    Absolutly true! The banks will benifit. Not only did the Central Bank counterfit money for banks to sell low interest loans but municipalities are not going to give back there inflated tax structure from market value to real value. The banks will borrow from the central bank overnight at the redicilous rate of 1-1/2% and sell this non existant cash back and forth to each other and then to the consumer at 500 – 2500 % profit with a guarantee from the Federal Govenmnet which has no cash at all. It’s pure politics. Look at the cost of Gold and you will understand what loosing the vietnam war to the communist now in power has done.

  18. J. Wu said:
    on July 23rd at 06:30 pm

    Yes thats true

  19. jc said:
    on July 24th at 07:05 am

    Everybody opinion is right. for more understanding please visit this website called zeitgeistthemovie.com Copy and paste on to google and watch then you’ll change the way you think about the truth.

  20. Jess said:
    on August 1st at 03:08 am

    YES! zeitgeistthemovie.com! I have heard of this – But I couldn’t remember the name! Thank you jc! Absolutely we ALL need to watch this (get past the “arsty” beginning – there is real substance).

    We are all sheep. Cattle.

    Time to JUMP THE FENCE!

  21. Jess said:
    on August 1st at 03:10 am

    BTW – that site was wrong it is http://www.zeitgeistmovie.com/

    Go. Watch it! Now!

  22. Chris said:
    on August 5th at 04:15 am

    With a rampage corruption, war, devaluation of the currency, deregulation on the financial market, run on the banks, bailing out institution is a reminder that the
    “chickens have come home to roost”!
    A -“TROYKA”system of government – “political corruption, moral decay in local and state level;
    The “TROYKAS” system works in harmony for the benefits of themselves! The news report was, there is “run on the bank”- IndyMac Bank! It reminded me that “In early portion of Civil-War one-third of paper money in circulation was counterfeit”! It is a fact “the Financial system is not sound! It operates on same principal system as is the one in Zimbabwe by “adding or dropping zeros” of the currencies – “Zimbabwe drops 10 zeros “! We are at the point where we have added three zeros to one dollar bill that had value to buy one once of gold! It means the government has devalue the dollar by 1000% [percent]. Printing press economy is a very powerful and convenient way for confiscation for the benefits of those in power! The government has raised the national debt from $9.4 trillion dollars to $10.6 trillion dollars to bail the institutions out!
    “… The conservatism that speaks … in Washington… declare war on public workers…, have wrecked established federal operation… , and they have deliberately piled up an Everest of debt in order to force the government into crisis” is very true!
    A system created in 1930 of “PURPOSEFUL, DELIBERATE and RATIONAL”, is corrupt! “The Fannie Mae, Freddie Mac and a Banking System” created “to serve the public, it turns out it serve themselves”. “The Civil War, the 1930’s and 2008 run on the bank” must not be ignored, for it has been a deliberate agenda to “Reclaim the Conservative Value” by “deregulation of the Financial System”! Conservative claim, a capitalism system… “provides, service, benefit and a product… that you get rewarded for it”, turns the “reward” is stolen, – “run on the bank”! “The Republicans claim the cost of living has fallen dramatically…, have championed… for Americans”! Has the cost of living fallen? From $1.00 a gallon gas, it is now selling over $4.00 a gallon. We have been reminded of Constitutional system… that protects “the rights of the people” – a right to loose saving funds by corruption in a saving institution! “Fantastic misgovernment to cultivate a ‘farm system’ is not an accident..! I agree, “it has been a professional job.”! A Judge from the supreme court states, “… what did the words mean to the people who ratified the Bill of Rights or who ratified the Constitution, as opposed to what people today would like”. Claiming “it puts him on the defensive as defending presumably a dead Constitution.” The judge argue. “Society doesn’t change through a Constitution, the laws do change and we adopt their value”! In place of an amendment to the Constitution the new “adopted value” is $10.6 trillion debt, on going war of trillion dollars, 4200 death, thousands wounded, economic and financial crises – depression, etc.
    The justice system has failed to protect the Constitution. It has failed to enforce the statute 5301 Official Oppression, it states, – “A person acting in an official capacity, knowing his conduct is illegal he: denies or impedes another in the exercise or enjoyment of any right, privilege, power or immunity”! It is a government for the special interest group, the privilege and wealthy. I disagree, that “…. we govern ourselves and the government is ours”.
    It is a Constitutional system of political corruption that denies the fundamental right of the people to “EXPRESS THEIR WILL” on ALL ISSUES!
    Have we the stamina, commitment…. to take such action?
    To take action now is to amend the CONSTITUTION to “empower the people to express their will on all issues”! Impose strict rules on the three branches of
    government! The two party system is corrupt and do not offer substantial change!

  23. Options Strategist said:
    on August 30th at 06:22 am

    In the hindsight it all worked well. US economy has never seen a negative quarter since 2002 ! God Bless America…

    Last quarter GDP grew 3.3% which is a robust number and the downside risk to economy has nearly evaporated for the year 2008. Lets just take one step at a time..

  24. June said:
    on September 19th at 11:03 am

    Maybe the banks get the majority of the money made off of investments but the banks do the “legwork” while we just deposit the money; We DO have a choice. Don’t put your money in the bank if you don’t want to. No one makes you put it there. Also, if more people would pay cash for what they buy and stop buying on credit they wouldn’t have to go to the banks to be bailed out of debt. It is ridiculous how much American spend on things they don’t need to begin with. Then they cry because they can’t pay their mortgage payments. They shouldn’t have bought the Wii, fancy cell phones, extra channel on cable….the list goes on. If we go back to the policy “If you can’t afford it, don’t buy it” the banks won’t be able to make these huge profits off of high interest rates on loans.

  25. Leonard said:
    on September 22nd at 01:13 pm

    The fact remains that people over bought what they could afford. Yes, the banks were irresponsible in lending them the money, but as adults we are responsible to determine what we can or cannot afford. Many financial institutions tried to loan me more money than I knew I could afford, but I have the wisdom to decline it. Blaming someone else for our bad decisions has become the way we act today. Greed of individuals is the real reason they lost their house. Bad business decisions should not be rewarded by a bail out. Let the banks involved and individuals involved go under. It is what they deserve. Maybe they won’t be so foolish the next time.

  26. Chase Morgan said:
    on October 8th at 07:47 pm

    IS IT A BAIL OUT, OR – BARBARIANS AT THE GATE?

    I am, as most Americans, forced to agree that if this bail out plan didn’t pass, we would be in even hotter water. The fact of the matter, is that we are in this mess and need to find a way out.

    In the midst of the unsettled financial markets there’s been general agreement about one thing: the outcome of the current crisis will be far-reaching changes to the global financial system. For example, Morgan Stanley chief economist Stephen Roach believes the world’s central banks are now being forced to look afresh at how financial bubbles should be handled. Up to now their attitude has been that the markets must correct financial bubbles themselves.

    However, the massive emergence of various kinds of derivative instruments created such huge inverted pyramids above an underlying asset class (such as prime mortgages) that things get out of hand when bubbles burst. Roach believes that central banks can hardly afford to condone bubbles in the future.

    The question to be answered is: How and when they must take steps to avoid meltdowns?

    As some of Wall Street’s most venerable financial institutions teeter on the brink of self-destruction and are either taken over – in the case of Bear Sterns – or, as in the case of Lehman Brothers, allowed to implode, very few financial sectors appear capable of weathering the storms.

    In view of the “bail out” agreement reached this past weekend it seems as if financial markets throughout the world will however react positively to this announcement. An announcement in my opinion not made by choice, however rather by force! Financial Guru – Warren Buffet correctly remarked that if the “bail out” plan was not approved – the American Economy would face certain “meltdown”!

    In lieu of this it stands to reason that there weren’t much alternatives than to see the bail out plan pass through congress? A certain relief for most – al be it temporary. Both Presidential Candidates voted for the plan as has been seen. Not much of a choice by the looks and sounds of it!

    Certainly the pressing question on our minds should be to now take a calm and responsible view back, on what has caused this catastrophy? We should all agree that it is a catastrophy, although suspended perhaps for the moment. One can only call it “suspended” as this has still to play out and we will see how this effects the struggling markets and economy alltogether in the short, medium and long term!

    IS THERE ANOTHER 700 BILLION US$ available should this not work?

    One cannot help but wonder after pondering on all of this for months on end – who is the biggest terrorist or threat facing America after all? Is it Osama Bin Laden – or worse, is it someone or something, much closer to home? I certainly don’t want to be in the shoes of the current President and wonder if anybody in his right mind would like to be in the future President’s shoes!

    However, fill the shoe we have to, and it is now up to every single one of us to realise that the problems facing America is far greater than we want to believe. Republican, Democrat or Independant all stood together, cried together and worked together when the tragedy of 911 struck!

    The tragedy of September 2008 is far worse!

    We don’t have the liberty of taking on the world at present! No matter how righteous our beliefs are, no matter how convinced we are that terrosism should be fought in every corner, every nook and cranny, and in any place in the world. More Americans have died in this war than in 911 and we are not calling it a tragedy or catastrophy? No, we accept it because we are dying for our country, our beliefs and our ego!

    Senator McCain says that he will not see to it that we pull out of this war before victory! He knows how it feels to come home defeated and to live to the consequences of knowing that a lot of people, or so he believes – has died in vain!

    Are we staying at war because we don’t want to feel bad? Are we loosing our children because of ego’s?
    Or worse, are we staying at war to loose our country and our very excistence?

    WE ARE FACING A POSSIBLE MELTDOWN!

    IS THIS A BAIL OUT – OR ARE THE BARBARIANS KNOCKING AT THE GATE?

    Undoubtedly the bail out is necessary, could it have been avoided – too late to ask! Can it be avoided in the future – we have no alternative but to believe it can! The question is how?

    Now, we can tighten up the budgets on every field of the economy, we can harness in every corporate company to be more dilligent in their dealings. We can increase or decrease taxes, impose new legislation, fire the wrong doers or restructure government to be more lean and mean.

    All of this is however in vain, if we are still going to remain a “country at war”!

    It’s simple economics people! The war is killing America! It costs us a hell of a lot more than it costs Osama Bin Laden and Company to fight this! Perhaps he is a lot more astute than we will give him credit for! Perhaps he has gone into hiding, knowing that sooner or later – the “meltdown” will begin!

    Sure we need to keep face in the world! Are we doing this now?

    I don’ think so!

    It is my opinion that if we wan’t to weather the greatest economic storm ever to hit our shores, we need to act and act now, before it’s to late! Our leader, Republic or Democrat will have to realise that we can’t stay at war and build our economy up again – it’s childish to even contemplate that.

    If the world believes we are doing the right thing fighting terrorism offshore, then the world should climb in and help finance this war much more than they are currently doing! If not – we need to pack up and go home before it is too late!

    No other country in the world other than America is facing a “meltdown”? Why should we?

    I know there is a lot more to it than a normal citizen like you and me know about this alltogether. However, it is time we harness our strength as ONE NATION and forget about politics for now. We need to think about America – all of us!

    The “Barbarians are at our Gate”, not in Irak or Pakistan!

    Join me in my blog: http://chasemorgan.wordpress.com

    GOD BLESS US ALL!

  27. Electrogeek said:
    on December 12th at 02:29 am

    As we all know, the current credit crunch is caused by lenders who have lent out significantly more than they really have. All the money that the government is giving away eventually finds it way into the vaults of nearly-insolvent, greedy banks… either that or to China to import the latest iPod to America.