he Obama Administration has been widely criticized for using large sums of taxpayer funds to bailout banks and the auto makers. Now the Treasury Department has come up with a new solution for the bailouts: sell it to private investors.
According to Ben Protess of the NY Times, the Treasury Department held “test runs” where the Treasury sold part of their share of preferred stock in six banks to private investors. Ultimately, this is the better route coming from the common taxpayer’s perspective because then the government doesn’t need to start programs such as TARP where only a few large banks such as Bank of America Corp (NYSE:BAC) and JPMorgan Chase & Co. (NYSE:JPM) were able to repay the government the capital that was borrowed. As for the 343 other banks that the government loaned to under the TARP program, most are small banks which will never be able to raise the right amount of funds.
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The only good news about this whole bank bailout is that the Treasury announced that they actually made $19 billion in profits. However, in the private auction mentioned earlier, the Treasury said they sold most of their assets for less than what they had originally purchased them for.
The government should not be holding majority or even large stakes in companies for an extended period of time. That is not part of the United States’ values because we are a strong Capitalist society not Communist or Socialist. Not to mention, risking taxpayer funds like that is outrageous and unjust. The hard truth is that if a bank wants to expose themselves to large amounts of risk, then they should deal with the consequences that go along with that. It shouldn’t be the duty of the US government to bailout the banks and essentially reward their bad behavior.
Did the banks actually learn their lesson from 2008? It remains to be seen but hopefully Lehman Brothers was a strong wakeup call that next time you want to inherit all these risky assets, the government will not be there to save you.
I hope that we never experience a 2008 type scenario again but the reality is that 2008 type recessions do occasionally happen but I hope this is a big realization for us all. Banks will not be saved by the government, bottom line. The same goes for the auto makers. I am very pleased with the outcome of the auto bailouts and I believe that American Made is back and in full force. However, if they do cut corners again and get involved with financing (GM) and other activities that they shouldn’t be in, they will fail.