Need for economic stability has prompted many attempts to implement successful stimulus packages managed at the Federal government level. The success of these programs is highly questionable; the abundance of negative statistics would suggest they are not providing the desired results.
It is important to understand how limited a role our government was intended to be playing in our lives. The Founding Fathers desire was to keep our government small and controllable by the average citizen. We were to have a strong voice in the management of our local and federal government. The Framers of our Constitution made sure their meaning is very clear in all the documents drafted by them outlining the core function of government responsibility (Rauchut 25).
Another point I would like to make deals with all of the federal government spending programs. It's sad but I have to admit this time last year I didn't even know how clearly it was stated in the Constitution, originally there was not an allowance made for government funds to be used on these types of public programs. All through our history many notable people have had to make unpopular decisions and stand by the intent of the Constitution disallowing funds to be given as charity, relief funds or used in other government subsidies intended for those who couldn't care for themselves. I found the statement "once the government genie was out of the bottle, it would be impossible to get it back in" to be dead on target (Rauchut 176). How funny is it the implementation of the federal income tax was the beginning of the end to all reasonable government spending.
One of the earliest official departments set up with accountability to the public was the Department of the Treasury. Even in the Founders days they realized how important the wellbeing of our economy would be and how easy the average person could fall prey to unethical behavior. The intent was to have a very transparent reporting system to give citizens the ability to hold government entities accountable for the spending of their tax dollars (Factsheet 1). A prime reason for the National Treasury Department simply put was to create a responsible party to oversee the public wealth, not provide support to failing enterprises.
In fact the Bill of Rights gave each of us the right to question our taxation and methods in which the government spends them. I'm sure it would surprise some just how tight fisted our early officials were with the tax dollars. They were known to treat tax dollars as their own, all expenditures had to be reviewed and discussed in those very early Congressional meetings. Daniel Gross pointed out in his article Nice Bailout. Now pay for it the increase in taxes to cover government spending is just how the revolution started (2). As a nation we have slowly but surely drifted away from the principles laid out by this group of early leaders, in fact there are some that would call into question the validity of The Constitution in this day and age. They would have us believe we have out grown the fundamental laws prescribed by The Founding Fathers.
While many would blame the current administration for all the problems created by stimulus packages or bailout programs, it is really not a new process (Nankin 2). We have had stimulus packages as early as the great depression; these programs were also funded from government tax dollars with highly questionable success (Trumbull 1). In 1970 government leaders slowly started to increase the number of bailout programs and broadening their scope. Here are just some of the programs that could still be causing the increase in our national debt:
Penn Central Railroad - 1970 $3.2 billion
Lockheed - 1971 $1.4 billion
Franklin national bank - 1975 $7.8 billion
New York city - 1975 $9.4 billion
Chrysler - 1980 $4 billion
American International Group (A.I.G.) - 2008 $180 billion
Auto industry - 2008 $25 billion
Troubled Asset Relief Program (TARP) - 2008 $700 billion
Several of the articles point out other administrations that used one version or another of a bailout plan. Some of these programs would be considered more effective than others depending on the targeted audience. When determining the success or failure of any program, government or private it is also important to note whether it actually ended up just being a delay in the inevitable cycle of company collapse or if it just had a smaller degree of return than desired.
Another aspect of this issue is the Federal Reserve System; the government is moving funds from the Federal Reserve System to the National Treasury for use in many of these programs. This was not the actual intended purpose of the funds held by this department. While the Federal Reserve System is not a department under the umbrella of the federal government it does receive input on its top management from the Treasury Department and pays an operating fee to the treasury. The Federal Reserve System was designed to be our back up fail safe plan ensuring we would never have a total devastation in our financial system. They are a key player in setting the accepted interest rates and have a large role in insuring stabilization of our national credit line. The "Feds" for short are also responsible for key oversight in all the banking functions, they provide the support needed to maintain the integrity of the financial operations that protect our personal funds in our local banking institutions. This same entity is responsible for the stability of the national financial market place to include our dealings with international banking institutions; this is why it's incredible that they could have purchased so many bad debts as a product of various stimulus packages.
Not only have the Feds invested heavily in the mortgage programs, they have moved more funds than ever before over into the Treasury Department. This loss is compounded by the fact they are part of the small bank bailout of which 101 banks have missed their repayment schedule drawing both the Feds and the Treasury Department farther into the bailout process (Cho 1). The majority of these small failed banks can be found in our local communities, their loss can have a very demoralizing effect on many people in the area. Not only with the loss of jobs but in the economy of the community as well. In this time of mistrust you still hear over and over about people especially the older generation traveling back to their small home town to bank because they don't trust anyone else with their money. It is a throwback to the days loans were executed with a handshake.
With the roll out of each new program we are adding more and more debt to an already overloaded national credit line. As a country we already have debts incurred just with the normal functions of running a large government, all of our social programs, not to mention the additional impact of funding two active war fronts. When you add the liability of Fannie Mae/ Freddie Mac, additional loans to cover AIG, along with yet another proposed bailout in the hundreds of billions of dollars future generations will be born into debt (Gross 2).
In an effort to stabilize some private industries Washington instituted a government takeover; they have in fact created a regulated market. Private businesses survive on profit, with the new administration involvement how can we expect the healthy competition that help drive profit. In some of the programs the government tactic was to move in and buy the assets at lower than market price. This well meaning effort could possible cause more issues by increasing the loss the company sees resulting in closure (Beck 1). It is certainly worth looking at the cost factor of some present bailout programs to help us decide if we are throwing good money after bad.
One of the government programs started shortly after the terrorist attacks in 2001, as a result of the forced halt to air travel the industry was provided relief to their financial troubles with a bill signed by then President Bush. This act gave the airlines $5 billion in recovery dollars and provided for loans or other federal dollars up to another $10 million. While Fannie Mae/Freddie Mac started out as a $100 billion dollar program as of February 2009 the cost has risen to $200 billion dollars (Nankin 1).
In December of 2009 Congress, trying to beat the closing of the current session for the holiday quickly pushed through another bill to help reduce unemployment, titled "Jobs for Main Street Act" this effort had a $150 billion cost to taxpayers attached (Davis1). During this period of the time the stimulus packages were coming fast and furious in an effort to reduce unemployment, increase spending in an all out effort to rescue a failing economy in time for the largest spending season of the year.
In the course of an ABC News interview Neil Barofsky, special inspector general noted the total amount of government funds involved in various stimulus packages would reach $23.7 trillion dollars this year with $368 billion of this debt being held by the United States Treasury Department (Jaffe 2).
One of the most costly bailout programs involved the purchase of $700 billion in mortgage debt by the Treasury Department in union with the Federal Reserve. These types of purchases are among the most risky for investment since the dollar for dollar return on these purchases are very unlikely (Beck 2). It is also a risk for the homeowners taking advantage of loans they still can't afford (Kane 2).
If a homeowner is already behind in payments on their mortgage the refinancing of their home loan is really not going to provide any help in the long run. When you add the closing costs incurred on top of the payment chances are they will end up with a payment still out of their budget range (Kane 2). Many of the issues for homeowners were caused by the glut of foreclosures on the market, people saw homes that would normally be way out of their price range and with the lower interest rates were encouraged to purchase before they thought through the entire effect on their budget. Along with these larger homes came increased insurance payments, utilities and home upkeep. These are the things not put in the small print of mortgage loans. At first the program appeared to be a success, homes were being purchased and money was turning over in a large number of lending institutions. The data shows this only increased the number of foreclosures we are seeing today in 2010 and was indeed a very temporary fix costing more to us the taxpayers in the long run.
Other costs associated with stimulus programs are seen as decrease in value of loans and mortgages, just recently home loans valued at $100 million dollars were being sold with a loss of $65 million dollars (Beck 1). This is not small change by any means, the impact is especially important when you learn the loans were sold to the government as part of the banking stimulus packages. As recent as this week the national news stations are still reporting excessively high percentage of home foreclosures. This adds to the increasing level of bad debt owned by our government.
In late 2009 Congress put in place yet another program with a catchy name ARFA, Antirecession Fiscal Assistance Program. This program was targeted down to the state level with the intent of increasing jobs and funding repairs to antiquated infrastructures at the same time (Mattoon 1). The major problem with this program was timing, the economic problems at the state level were documented in 2007 and this package did not provide the first relief aid until early 2009. Unfortunately the downhill momentum had already begun, proving the timing of these aid programs are a key to their success or failure. It was discovered later that many of the states used the funds to replenish their budgets and not on infrastructure improvements (Mattoon 2). So many states still have low employment rates and crumbling facilities. Realizing the past programs had failed to generate the successful outcome expected President Obama in mid June made yet another attempt to boost our local economies; he is behind two initiatives that would provide approximaly $ 50 billion dollars directly to the city level (Sappenfield 1).
One thing you can say about government programs is the documentation that surrounds them. It might not always be readily available but the information is certainly there. The recovery package President Obama put into effect this past February is a key example, just one copy of the bill was a thousand pages of one sided print. The actual number of copies printed is unknown. While this is just a trivial piece of information it points out all the hidden costs involved in government programs. Also not included in the price tag is the salaries paid for the hundreds of man-hours worked by government employees involved in these processes. Total cost of this package with interest is over $1.1 trillion dollars (Human Events 1).
Some of the Pro's and Con's of recovery package theories is the involvement of our government with the auto industry and banking can be seen as a threat to the stability of our free market. The new oversight by government in private industry will result in the loss of their individualism. In some of the industries outside involvement could cause concerns involving proprietary processes being compromised.
Another concern might be the impact to individuals choosing careers that aren't complimentary to their skills because of changes in benefits or restrictive oversight. There is defiantly a requirement to ensure we have unbiased leadership when the government controls all key players in specific industries; the same government that is supposed to deter the development of monopolies has in effect just created their own?
It would not be a fair presentation if I didn't mention the known successes the TARP program has seen. The need for this program was at a peak in 2008, as of January this year many people have sited positive advancements. Many of the large banks have been able to find funds and cover their loans long before the due dates; this proves a degree of stability and movement toward economic recovery (Jaffe 2).
Some would say actual declaration of success or really even claims of failure are hard to find since we can't confirm how bad the economy would have been without all of the programs in place now. Improved outcomes could still be seen years down the road for the average citizen (Human Events 1).
From yet another angle if we look at individual programs the success rate is in the eye of the beholder, the 2003 Growth Tax Relief Reconciliation cost taxpayers $10 billion dollars to support a decrease in unemployment. During the evaluation of this program in 2004 it was determined it didn't perform as well as hoped but it did have some effect (Mattoon 3). Once again timing was determined to be a factor in the outcome. Having seen even a small decrease in unemployment would encourage some financial experts to count this program as a success. The seemly uncontrollable unemployment rate is an age old problem we can't really hold any one administration accountable for. It is one of those problems where certain areas are harder hit than others; here in our local area the unemployment rate is relatively low. Yet just three hundred miles from here not only men but women as well are choosing to join the military just to have an income and health benefits.
Howard Buffett's article really made sense with his reference to our superior economic performance based on the previous lack of government constraints (Rauchut 599). Concerns about how much government involvement would it take to stifle our individual drive to succeed. If we are not aware of the outcome of these programs we will not be working for our own individual economic future but expected to work as a group toward the goals set for us by government agencies.
Senator Bernie Sanders from Vermont made two comments about the bailout programs in September of 2008 that are still very critical observations. As a nation it is very important we work to find methods to project our economy from devastation should more of the massive corporate companies that are so heavily entwined in our economic infrastructure fail causing a total systematic collapse of our financial structure (2).
His second point speaks to fact we should have a requirement to go back and trying to fix problems created as far back as 1999, when some of our financial regulations or safeguards where set aside and or overlooked in an effort to bolster several large systems in an effort to keep them from disintegrating (2). These monster companies were none other than AIG and several major energy producers.
Just today one of the top news stories reflected back on the success of the auto industries bailout program. President Obama spoke at the Chrysler plant reminding audience members that while there is still one of the largest unemployment rates there in Detroit, the plant has returned to full shifts adding 1200 jobs. Adding yet another victory both GM and Chrysler are projected to start selling shares and repaying the government credit line given in the bailout. The article also mentions the issue of a proposed disadvantage that both GM and Chrysler would have to overcome in their race with Ford Motors for a larger share of the trade profits (Zibel 1). If you recall Ford did not accept the government handout and was able to work through their financial problems themselves and are now able to report a positive cash flow all their own, they are reporting a stronger sense of consumer trust based on their ability to retain independent ownership.
A direct impact of our recent unstable economy is reflected in the number of older adults who will have to continue working long past the time they had planned to be retired. Many of us lost considerable amounts of our retirement funds; these are funds that we might never be able to recoup.
In conclusion, Senator Sander's article actually gives validation to the premise stimulus packages or bailout programs can or have created government monopolies and
De-regulated some crucial market areas. The last thought I would leave you with is this; whether you chose to purchase an expensive vehicle from a particular company, put your faith in a specific financial institution to oversee your retirement funds, or agree the local highway needs improvement you are in effect doing just that by default. The government's use of your tax dollars in various stimulus packages has resulted in you losing one more freedom of choice.
