So, we’re all familiar with the Troubled Asset Relief Program (TARP), the government inspired program originally intended to purchase toxic assets from US based financial institutions with taxpayer money that ended up being a handout to the not so needy. We, meaning the taxpayers, were told that we should start heading toward the literal Hard Times Cafe if we didn’t act charitably because the financial system would implode. Since then a few things have happened: a financial crisis has morphed to an economic catastrophe with a whole lot of downside and not much else, and we started on our way to Hard Times anyway… with much lighter wallets and a heavier bag of metaphorical bricks!
It came out today that a certain bank is back at the feeding trough and is close to finalizing a deal with the government for billions more in bailout dollars. This is especially interesting because that bank received $25 billion dollars not long ago, and what did it do? It used it to buy another bank! Turns out that purchase was just as bad a bet as the mortgages that got us into trouble in the first place. I suppose for the sake of consistency, though, it makes sense to give ‘em a bit more – make a bad bet, get a bailout, make a bad bet, get a bailout.
Look, I’m no economist, but what I can say is that in the last several years during which I have been paying attention and learning I’ve found that almost everything is common sense. I’ve also determined that the lack of common sense is the basis of this whole thing. Everyone and everything is massively over-leveraged! Consumers carrying 10K in credit card debt and purchasing houses six to seven times their annual earnings, a negative savings rate, and banks leveraged at thirty to one. Did we really think that was sustainable? Did we? Really?!?!? What this means to me is that we’re in trouble – for a long while. Our consumption driven economy was fueled by cheap debt that is all dried up. Consumers and businesses have no liquidity to service their debts, much less to continue buying things they don’t need, and it’s not coming back any time soon. I wouldn’t be surprised if we didn’t see any real growth for several years.
What is the government’s solution? Why, more debt, of course! That, after all, is the basis of the stimulus package, isn’t it? The government is just as bad, if not worse, than any individual! You think we’re hurting now? Just wait until the government can’t service its (read: our) debt, or, in other words, the government goes broke. But wait, that can’t happen, can it? Like I said, I’m no economist, but I can read this chart:
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Does that look good to you?
