by A. Abuisneineh
PhD. Student, Concordia University: Chicago

In a survey conducted by the Pew Research (2010), “Only about a third of Americans (34%) know that the government’s bailout of banks and financial institutions was enacted under the George W. Bush administration.“ The bailout act was propagated as an economic savior was signed by President Bush on October 3, 2008 after it was initially rejected in the House a year before on October 09. 2007. Certain people theorized that the bailout act, known as Troubled Asset Relief Program or TARP was enacted by the force of the economic and financial markets. Among other things, and from the apparent conflict of interests among those engineering the act in the government policymaking system as policymakers and beneficiaries of the Act, the public has initially strongly opposed the Act. Currently there is a belief that the “media [has] openly pushed for passage of the TARP as a measure necessary to prevent a second Great Depression in both its news and opinion sections. It made no comparable push for a major stimulus package.” (Did the Market, 2003, n.p.).

The TARP was rejected by various public movements including TrueMajority and USAction that led organized protests against the bailout propjet citing conflict of interests among other issues.   Stein (2008) expressed concerns of US Treasury Secretary Henry Paulson role, stating that “Paulson's conflicts of interest spark concern.”  Paulson was a former CEO of one of the TARP major beneficiaries, Goldman Sachs. Mr. Goldman had former Goldman Sachs’ executives as advisors in his Treasury Secretary and some Paulson's former advisors have joined banks that were also to benefit from the bailout Act.  Hundreds of reckoned economists including Nobel Prize winner economist  Joseph Stiglitz, strongly opposed the idea and rallied against it.

A more flagrant issue was Mr. Paulson’s original proposal exemption of his person from judicial oversight, a check-and-balances mechanism used in governments to review the actions of government officials and invalidate their work.  Many people expressed concerns over the legality of Paulson’s proposal. Was Paulson and his Treasury responsible for enacting this Act? Samples (2010) says:

What should we have expected from Congress regarding the financial crisis of 2008? Article I of the Constitution vests “all legislative powers” in Congress. We should expect Congress to exercise those powers rather than delegate them to others. Congress is one branch of American government, a part of a system of checks and balances designed to limit political power and its abuses. We should expect Congress to check and limit the other branches of government. Congress is also meant to be a deliberative institution that carefully considers its legislative duties. Finally, Congress is part of a republican government and thus should be accountable to the people of the United States. On each of these counts, Congress came up short with regard to EESA [Emergency Economic Stabilization Act].

 
By enacting the Troubled Asset Relief Program or TARP, the government gave the money to certain segments of the financial industry without making sure that policies for which the TARP was enacted was in force. Barofsky (2011) described the situation as “There were no strings attached: no requirement or even incentive to increase lending to home buyers, and against our strong recommendation, not even a request that banks report how they used TARP funds.”

There were many other options. Delong (2009) argued that “unavoidable conclusion must be that things would not have been so bad if the government had refused to implement an expansionary fiscal policy, recapitalize banks, nationalize troubled institutions, and buy financial assets in non-standard ways.”

Lopatic (2009) cited the thoughts of James Wilson of the roles of media as “gatekeeper, scorekeeper, and watchdog.”  More “popular” media outlets opened a wider gate for the proponents of the TARP proposal who came from powerful financial groups across the entire political spectrum; Democrats and Republicans, conservatives and Liberal. The media approached the proposal in what it sounded like a balanced and “objective way”, revealing the advantages and potential disadvantages; with little emphasis on other options or opening the gate for other alternatives, despite the public outrage from the TARP.  Fowler (2013) in what seemed to be a deviation from the Wilson’s thoughts stated that the “mass media… not only report on policy issues and some stages of the policy process, but are also important actors in it.” (p. 139).  The media’s intensity in reporting the financial havoc of the financial meltdown, suggesting that the lack of government action to bail the failing banks will bring only more disasters to the public is an indication of this direct involvement of the media. For example, the Economist lauded the Act as “world’s savior”, saying that “No government bailout of the banking system was ever going to be pretty. This one deserves support”, and saying “SAVING the world is a thankless task.” (The Economist, 2008, n.p.).

Media outlets are still publicizing the horror of the financial meltdown, citing the significant losses of “Americans”, without citing who collected thiese losses in the financial marketplaces. CNNMoney, for instance, reported in 2011 that “U.S. household wealth fell by about $16.4 trillion of net worth from its peak in spring 2007, about six months before the start of the recession, to when things hit bottom in the first quarter of 2009, according to figures from the Federal Reserve,” (Isidore, 2013). But neither the CNN, nor other popular media, did say where the money that was lost has went. For every dollar lost in the marketplace someone should have won that dollar.

The main outcome of the TARP was the significant change in the wealth distribution among Americans during the 2009-2011 recession, according to more educated independent studies. The change was in favor of the richest people. Landy (2013) cited some research showing that “every dollar and more of aggregate gains in household wealth between 2009 and 2011 went to the richest 7 percent of households. Aggregate net worth among this top group rose 28 percent during the first two years of the recovery, from $19.8 trillion to $25.4 trillion. The bottom 93 percent, meanwhile, saw their aggregate net worth fall 4 percent, from $15.4 trillion to $14.8 trillion.” In other words, every individual in the "elite" 7 percent of the US population has increased his or her wealth by an average of approximately $10 million, while the the lower 93 percent of the population have their wealth reduced by an average of about $50,000 per individual; for the same period of time.

The story continues now with smaller bankrupt banks suing bigger “rescued banks” for manipulation of important financial functions. Recently, Forbes reported that the “FDIC filed [a] lawsuit on behalf of 38 banks which went bankrupt at the peak of the downturn in 2008, as a considerable part of the losses for these banks were incurred on interest-rate derivative products sold to them by the bigger [rescued] banks.” (FDIC Sues, 2014, n.p.).

It was a long time ago when Wilson described the roles of the media "of gatekeeper, scorekeeper, and watchdog for the federal government,” when the media was totally independent from the power of finance finance-politics. Wilson’s statement needs to be reexamined under our new economic system.

References:

Barofsky, N. M. (2011). Where the bailout went wrong. The New York Times. Retrieved on 3/25/2014 from http://www.nytimes.com/2011/03/30/opinion/30barofsky.html

Delong, J. B, (2009). Slouching toward sanity. Project Syndicate. Retrieved on 3/25/2014 from http://www.project-syndicate.org/commentary/slouching-toward-sanity

Did the Markets or the Media Force Passage of TARP? (2013). Center for Economic and Policy Research. Retrieved on 3/26/2014 from http://www.cepr.net/index.php/blogs/beat-the-press/did-the-markets-or-the-media-force-passage-of-tarp

FDIC Sues 16 Global Banks For Roles In Manipulating LIBOR. (2014).  Retrieved on 3/25/2014 from http://www.trefis.com/stock/bac/articles/230852/fdic-sues-16-global-banks-for-their-role-in-manipulating-libor/2014-03-18

Fowler, F. C. (2013). Policy studies for educational leaders: An introduction. (4th ed.). Boston, MA: Allyn & Bacon.

Isidore, C. (2011). America's lost trillions. CNNMoney. Retrieved on 03/26/2014 from http://money.cnn.com/2011/06/09/news/economy/household_wealth/

Landy, B. (2013). A tale of two recoveries: Wealth inequality after the great recession. The Century Foundation. Retrieved on 3/25/2014 from http://tcf.org/work/workers_economic_inequality/detail/a-tale-of-two-recoveries

Lopatic, D. (2008). Public opinion, the media and their influence on public policy. World Issues. Retrieved on 3/25/2014 from http://www.worldissues360.com/index.php/public-opinion-the-media-and-their-influence-on-public-policy-3-55645/

Pew Research. (20120). Well known: Twitter; little known: John Roberts. Retrieved on 3/25/2014 from http://www.people-press.org/2010/07/15/well-known-twitter-little-known-john-roberts/

Sample, J. (2010). Policy analysis: Lawless policy TARP as congressional failure. The Cato Institute. Retrieved on 3/26/2014 from http://www.cato.org/sites/cato.org/files/pubs/pdf/pa660.pdf

Stein, S. (2008). Paulson's conflicts of interest spark concern. The Huffington Post. Retrieved on 3/26/2014 http://www.huffingtonpost.com/2008/09/22/paulsons-conflicts-of-int_n_128476.html

The Economist. (2008). America’s bailout plan. Retrieved on 3/26/2014 from http://www.economist.com/node/12305249

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