Economics 12 Chapter Three

Bush government paid too much for bank stocks

Link: http://www.cbc.ca/money/story/2009/02/06/bailoutoverpay.html

Summary

This article talks about how Bush administration paid tens of billions of dollars too much for stocks and other assets in its massive bailout last year of Wall Street banks and financial institutions. Moreover, it added to the frustrations of legislators already due to the $700-billion rescue plan, known as the Troubled Asset Relief Program, or TARP. congress members approved the plan last year,but many members from both parties critized this spending decision made by President Bush and former treasury secretary Henry Paulson.The oversight panel examined 10 transactions, including to ones designed to put liquidity into the banks in hopes of easing credit. However, that money went to banks considered financially healthy but in need of capital to make loans. Two other transactions went to AIG and to Citigroup Inc. under programs designed to help companies facing serious financial difficulties. Overall, the analysts conduct the valuation study found that the Treasury used taxpayers' money to pay $62.5 billion more than the value of assets in the 10 transactions it examined. By extrapolating hundreds of institutions it is concluded that the government in effect paid $78 billion more than the value of the assets at the time.

Connections

Chapter 3 talks about the role of government in a market economy and this article could be related to the chapter very well. It talks about how Bush and the goverment are spending billions of dollars too much on stock and other company that's collapsing to help the massive bail out last year. Moreover, many believes that it is the lack of a role of the government in the American banking system that has triggered the recent global economic crisis. In the taxtbooks it also mentioned about how only after conditions did not improve during the Great Depression, did governments realize they cannot wait for the market itself to readjust and must galvanize the economy with bold fiscal policies themselves. If the government realized earlier and started different act and summit in advance, it would offer more jobs which would decrease unemployment rates. If people have a job they will eventually start spending money which will slowly increase economic growth. Another solution the textbook mentioned was how the government can intervene to help stabilize the free-market system.

Reflection

I believe that if the government took a role in the economy earlier, it would help much more than just putting out billions of dollars trying to save when's been done already. The United States is going into a deeper recession and that will definitely affect other countries as well. If governement is different country could work together and imporve different system such as trade and gobalization. It might help the world's economy as a whole. Lastly, the govenerment should have used some of the money from the billions to help the public and increase unemployment rate, because it is the most direct ways to help citizens.