What If The Bailout Went to People Instead of Banks?

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Mon, Feb 2 - 5:57 pm EDT | 5 years ago by
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One of the big questions that many people — including myself on CNN Money — have been asking is this one: How much would we get if the bailout went to taxpayers instead of banks? We’re funding this bailout, so it is no surprise that people are getting a little anxious about who is getting this money. And how they’re using it. So, here is the answer that CNN Money came up with:

Answer: $9,718.49

To arrive at that figure, CNNMoney.com took the total of the bank bailout, $700 billion, and added that to the proposed stimulus spending in the House of Representatives bill, $819 billion. That totals $1.519 trillion.

We then divide that number by 156.3 million, which was the total number of U.S. filers in 2008.

So: $1.519 trillion divided by 156.3 million equals $9,718.49 per U.S. taxpayer.

Now, this figure only includes the latest two large economic stimulus bills (the one in Congress now and TARP passed last autumn). The real number spent on economic stimulus measures so far — most of it benefiting banks and some of it going to pay for executive bonuses and perks — is something right around $7.2 trillion. And that’s without the economic stimulus bill currently being considered. So, with a little quick and sloppy math, you can take that $9,718.49 and multiply it by seven and get pretty close with this estimate: If all of the economic stimulus spent so far had been giving to taxpayers, each would get right around $68,000.

How much could you do with $68,000? You could pay down debt, set money aside for savings, and do some consumer spending. (Of course, part of that stimulus is the money from the tax rebate received, so I suppose you can subtract the money you got last spring from the total.) The benefit increases in number slightly if you look at households instead of taxpayers: According to the Census Bureau, there are about 126 million households (as opposed to 156 million taxpayers).

What’s the excuse for not splitting the money amongst taxpayers?

Even though it is obviously too late to recall the trillions spent already, close to $10,000 would be quite helpful. But we won’t get it. CNN Money also answered the question regarding why taxpayers will be lucky to see only the possible tax cut included in the current economic stimulus bill:

But the government is looking to have that money get spent and to have it multiplied somehow. Our economy is based on people spending money. So people saving money doesn’t help.

And there you have it: Instead of helping us completely makeover the economy, our leaders are set on keeping the current model of growth through (unsustainable) debt-fueld consumer spending. Personally, I find it heartening that more Americans are becoming interested in saving. Also, it is worth noting that paying down your debt isn’t any more helpful to the economy, either. Although I contend that if more Americans were able to pay down debt, it would prevent some banking problems through fewer defaults. It’s sort of a trickle up effect.

Of course, just giving us all between $15,000 and $50,000 apiece to begin with would have been cheaper. We could have paid down credit cards, made a big enough mortgage payments to qualify for refinancing and loan modifications, and maybe even bought cars (you know, a couple thousand down and then 72-month financing). All of this would have freed up all sorts of resources for us to be spending again — just like the government wants.

Now, don’t get me wrong: I’m not a big fan of any bailout. But I do wonder if — since the money is going to be spent anyway — it would be less wasted coming back to us rather than going to fat cats.

What do you think? Should the bailout money be given to taxpayers?

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  • Carl

    With all that money to the people, yes many would pay off debt, but where would that money go? The Banks, which wouldn’t they lend it back out to others, possiblly driving down interest rates as banks might be over flowing from people paying off the debt and not having enough people demanding credit. Which then would cause people to take out cheap money loans for cars and investment multiplying manytimes.

  • miranda

    Excellent point, Carl! And, of course, this recycling money and debt is what our leaders want. Unfortunately, that’s where we’re at with our economy. “Stimulating the economy” really just means keeping money moving through the credit machine.

  • http://www.mises.org andrew Hayes

    I think you are getting somewhere, but there is only a slight hitch in the proposition, that being that the money in question is not the government’s to give, they extorted, or taxed, if you will, it from other people. An even better solution would be to eliminate taxes and let the free market provide the goods and services that the government currently does, assuming that there would be such a demand for those things.

    This recession was not caused by the private sector, but by the fractional reserve banking system and the federal reserve printing more money, both of which inflated the money supply. and caused mal-investments to be made.

  • http://thepassivedad.com The Passive Dad

    We could sure use that money to help improve the U.S. economy. Let’s see…we would probably eat out a little bit more often, buy more groceries, and buy a few more presents. We would also help California as we would be paying sales tax too. It’s a win-win for everyone.

  • miranda

    @andrew: Thanks for weighing in. I think a lot of people probably agree with you. Unfortunately, there are plenty of things that we expect from our government, and trying to solve it with the “free market” probably isn’t practical. We’d fall completely to pieces before any sort of market forces recovered things. And, I have a horrible sinking feeling when I think about health care — costs out of control when the companies are in cahoots. Not to mention the fact that I’m not sure I want companies like Exxon deciding what fuel to use. I trust companies operating on a “free market” system less than I trust the government. At least with the government, there is the chance that some small change is made. With companies, they can pretty much do what they want with no real accountability — no matter what they say about supplying demand.

    @Passive: It would be nice. It could help folks get their individual finances back on track, and it could set things up again. Unfortunately, like any of the false solutions that involve increasing consumer spending, we end right back at this point again in a few years…

  • Anthony

    Where do you think this money comes from?!?!?!?! I’ll give you a hint it comes from you. If I take $10 out of your pocket then give it back to you, you aren’t any richer and that is what the government is going to do. If the government doesn’t take it out of your pocket and instead prints the money this causes inflation making the money in your pocket worth less thus taking money away from you. If the government borrows the money, well that is a whole other can of worms. Furthermore, giving everyone 10 grand won’t do anything except make a temporary increase in spending. Once the 10 g’s are gone consumer spending is going to drop again and you are right back in the same recession that we are now.

  • miranda

    It basically comes from: future taxes or debt. I know this. But it comes from those places whether the government gives it to us to to the banks. In either case, inflation comes (although, granted, it likely comes more when the $$$ is given directly to the people). Quite honestly, no matter who you give the money to, we will be right back here in a few years. We’ve been trying to ignore regular economic cycles, so when we finally succumb, recessions are bigger and bigger.

    I can get on board with building infrastructure and developing renewable energy technology, as well as investing in education. But I have a hard time with the idea that throwing even MORE money at banks (on top of the trillions already spent) is going to help more than just giving money to people.

  • http://www.mises.org andrew Hayes

    Just for fun you might want to do a little looking around and see just how practical a state is compared to no state. A good start might be “The Myth of National Defense” by Hans-Hermann Hoppe et al., I could also recomend “Man Economy & State” with is sequel “Power and Market.” By Murray N. Rothbard.

    I just wrote an article about how people really should feel slighted, because they are being cheated. But that a person doesn’t always know who it is that is cheating them. In general it is not the free market, but the government. and in this particular case, you mentioned health care, it is not The free market (we don’t have a free market in health care) but just the opposite, the Government regulation and exclusivity of the industry that makes that allows doctors and healthcare professionals to set prices so high. essentially there is no competition and it is like a mid evil guild.

    But as far as the potential for change. There is absolutely no chance of change with the state. The government always holds a monopoly in the areas of violence and “justice” of which they forcefully exclude anyone else from competing with them. Beyond that, they do not even give it’s patrons a choice of using their services or not. There is no trade, no voluntary exchange. Governments always use violence or the treat of violence to get money out of the pockets of those who are unfortunate enough to live within their self determined boundaries.

    Exxon on the other hand does not do this, nor does Mcy D’s even though their food might kill you!

    They only get money by satisfying the desires of other people. and that seems like a much nicer way to go about life that forceful monopoly and extortion.

  • http://www.mises.org andrew Hayes

    The point of all this is that the government should stop stealing. Stop taxing, stop using violence to gain funds… just so I am clear.

  • http://www.mises.org andrew Hayes

    Not a bad post Anthony, except they sometimes take the money out of Smith’s pocket and give it to you… That makes me a sad Donkey.

    But don’t leave out the Fractional Reserve Banking System. that is, along with the FED, the greatest reason we are in a recession.

  • miranda

    An interesting viewpoint, Andrew! I’m not sure how practicable it is (it would take a radical change in the way we as a society view government), but it is a compelling picture. Although I’m not sure that corporations would keep from using strongarm tactics if they had the chance to…

  • http://www.mises.org andrew Hayes

    Well the government already does right?

    but no, As I mentioned there is a wealth of information, books, articles, and scholarly journals explaining how a state-less society would operate. It would have to be based on the Libertarian principles of right to life, liberty and property.

    to give the short explanation, Capitalism (in the pure sense, not as it is in america) is good. because everyone, in order to attain wealth has to meet the desires of someone else.

    The monopolistic city gov’t run police dept, that doesn’t go into certain parts of town after dark, would be replaced by private protection agencies. In fact these agencies are already in place, I’m talking about Farmer’s, All-State, and Geico. Insurance companies would compensate the victim (their customer) for whatever loses they endured, and then the insurance company would go after the criminal to seek retribution. They wouldn’t be interested in busting guy in speedo’s puffin on a bong. They would be going after vandals and thieves. And alot of the industry would be geared towards prevention. but there’s whole books written on this stuff so I won’t waste anymore of your time. however if you are interested look through http://www.mises.org. there is alot of great stuff there.

  • Carl

    Debt is Debt. All we are talking about is a transfer of the debt. The current Stimilus bill does it giving the States billions to pay off their debt, so the Federal government can be more in debt.

    Let’s start by transfering personal debt to the federal government instead if we are going to transfer this debt. Then hopefully the people can help together to pay the federal debt.

  • Miranda

    I think you’ve nailed, Carl. Right now, our entire economy relies on the credit markets to keep moving debt around. Personally, I like your idea. Have the Federal Government give us the money, so we can pay of our debt, which in turn puts money in the banks so that they have better liquidity.

  • http://www.searchenginesurgeon.com lyle

    Amazing article. I have been taking about this for the last 2 months and I’m glad I’m not the only one thinking this way. I own a small business and a home with an adjustable rate. Giving me a $1000.00 tax break is an insult. It is amazing that when companies or people do wrong they get rewarded. Banks and Wall Street put us here because of greed. All the CEO’s still have their million dollar homes, private jets, and huge salaries. Who won here? Not Main Street. We elected a President for change and we got pocket change. I see Politics as usual. Great insight! Keep it coming.

  • miranda

    Thanks for stopping by, lyle! I agree that it is shameful that all these bank CEOs have continued living the high life, yet very little is done for us. I’ve stopped reading about Citi, because all it does is enrage me.

  • http://freefrombroke.com FFB

    One big problem with everyone getting let’s say $50,000: Inflation! I think $50K is enough that people would save and pay bills and still have a lot to go out and spend. Sounds good but it would cause demand to rise which would cause prices to rise. Now the country needs us to consume but the resulting inflation would hurt us for a while. It’s a big reason past stimulus checks were relatively small amounts; so inflation doesn’t spike.

    And then what happens when the $50K runs out? It still doesn’t change our spending habits overall.

    I’m not saying the system in place is correct either, just saying there’s problems to giving individuals the money instead.

  • http://mysuperchargedlife.com/blog Jeff@MySuperChargedLife

    It is scary that we continue to build our economy on a model that requires us to continually buy, buy, buy in order to sustain growth. I’m like you. I think it is a good thing that this recession is causing Americans to be more conservative with their money. Is our government really serving us well with their strategy? It is highly debatable in my opinion!

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  • miranda

    @FFB: Inflation is a very real problem. It could probably be limited, though, if people used the money to pay off consumer. Inflation is likely to come anyway (although not as dramatic, I guess), due to the large amounts of money that will soon be in the supply. Unfortunately, the point of the stimulus is not to change our spending habits. Rather, our leaders want us to persist in the habits that we have been following for years. There are always problems when the government starts handing out money — whether it is to big banks or to individuals.

    @Jeff: It is scary that 70% of our economy is based on consumer spending — most of it debt-fueled. Whether the government gives the money to others or to individuals, the result is the same: A continued focus on the current economic status quo. And that will never be good for individual finances.

  • Carl

    Hey, if someone gave me 5 grand to pay off my car I would take the savings of the monthly car payment and look to go to Disney World for week.

    Yes I would still have debt, I am trying to snowball it the best I can. We just need a big carrot to get our debt paid and some saved so a trip to Disney is the reward if we can reach our milestone.

    Which a small bailout of me could mutliply quickly with my plan as that trip hopefully of December 2009 or early 2010 could be guaranteed to occur in 2009.

  • miranda

    Ooooh. There we go! Pay off debt, help the banks get some cash and liquidity, and then head out to do some consumer spending. THAT’S how to help the economy. Imagine if everyone could do that…

  • http://austincurtis.blogspot.com Austin

    I had this exact conversation with my dad last night on the phone. If the tax payers were given that money – it would definitely end up in the hands of the banks!

    Whereas, if the banks are given the money, we aren’t very likely to see a dime. The idea that banks should get the money is very unAmerican in my opinion.

    Was it Thomas Jefferson that warned against the power of banks? I think it was him who said something like “make sure you don’t let the banks print their own money – it will jeopardize our democracy”

    ‘Trickle down’ doesn’t work. The rich get richer and the middle class is getting wiped out.

  • http://www.yieldingwealth.com Miranda

    You make a good point, Austin. We’ve already give trillions to the banks in the name of economic stimulus, and the money hasn’t been used for the purpose it was intended for. Giving the money to us would provide a better chance that it would actually accomplish its goals.

  • katja

    Give us the money. Don’t worry about inflation, it’s kind of artificial in this case, right? If people pay off debt, demand doesn’t skyrocket because some of that money goes to pay for things we already bought, not things we are buying. By the time demand hits, companies can respond by re-hiring the 3.6 million people who’ve been laid off since the beginning of 2008 and returning to the budgets/financial operations they had before. They don’t even have to increase salaries – in this scenario, everyone has gotten about $60 grand to make themselves more stable. If they didn’t freeze their mortgages by converting to 30-year fixed or decrease debt by paying something off, and are demanding a huge salary increase to compensate, it’s their problem. There isn’t any reason for prices of goods to go up for quite a while.

  • katja

    I also wanted to add that in the current scenario, where the money is given directly to the banks, not only are the people not “helped out”, but the people still not credit worthy because of the debt we’re already carrying. So who can keep borrowing to keep the banks from failing anyway? We’re just turning the banks into a money pit.

  • fizzexman

    One of the essential flaws to our fractional reserve banking is that is essentially a pyramid scheme. At any point in time the money lent out is not enough to pay back the loans made, so there must be a continuous increase is lending. We need to break the monopoly of the federal reserve by allowing competitive note issue, where the money issued by each bank is backed by their assets. This makes it possible for the economy to operate without continuously expanding the debt base.

  • miranda

    @Katja: I tend to agree with you, especially about how the banks are becoming a money pit. They’re getting some nice capital at our expense — and sitting on it.

    @fizzexman: Interesting idea. I agree that something needs to be done to wean our economy away from increasing reliance on debt.

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  • Ben Hinojosa

    I do agree whit you we the American Peoplneed to take back our money. I am Horrified by the high amount we are forced to give to the rich. I am upset with the do nothing sit around and let the polititions figure it out. What we need to do is take action and stop the bailout. We need to take control of this situation because we are the ones feeling the pain and we will untile we stand up for ourselfes and Demand a real change of the system that has kept up subsevient and now a system that is holding us by a noose leading us with fear demanding we do this or that noose will hold tight and will not let go.

  • miranda

    I agree that more citizen activism is needed. We need to participate in the process. Until we do, we’ll remain subject to the status quo.

  • Mike D

    These points are good but we are missing the big picture “Credit”that magic number called Fico score
    it is worse than your social security number.
    There has to be a credit reporting reform act of some kind if my numbers are right 35-40% of the nation has some form of bad credit.
    And it is getting worse by the month people who have really clean credit go out and buy what they need like a new car they trade in a used car or a 10-20% down pmt if they use a trade in that dealer keeps the very good trades and then takes the other trades they don’t want to the action to be sold to lower level dealers.
    They try to sell to sub prime loan folks at a very high interest loan from 18-24% and with a $500 and down payment these folks are not any better off they might have a car now until they hit a bump in the road and they find that their car has been taken by the repo man and their credit just go worse.I know a man that got laid off from cat and the bills started getting behind and so did his credit as you know employers run a credit check on just about any job you apply for and that is more monkeys on your back.
    I think that items on your report should be limited

  • Mike D

    for a limited time not 7-10 years for minor stuff that drags your score down the drain.
    They should limit employers to run credit checks only when money or high security is in the mix not regular jobs.
    That just makes finding a job harder and the problem worse.
    Those reports are incorrect most of the time with bottom feeders reporting more than once on one item and now that some scores will not be given to the consumer just the lender makes it hard to keep and eye on your credit and take care of it.They should limit items for 2 years and remove inquires when you run credit not 12 months they cost 3-4 points each.

  • Mike D

    I would like to see every one take a credit awareness class after the complete this course their credit score on all three reports be reset to 700 and they are on probation for 12 months one goof up and they go back to their first score.All bad information would be removed and they would have a fresh start like a chapter 7 but this would revert back if that consumer screws up with in 12 months after that it would be treated like a normal report.Then folks that take care of their credit and that would boost the credit in the nation and people can buy cars and homes with in their means only no more getting over your head.
    Banks have new guide lines on job and earning and would deny any loans that would cause problems down the road or at least that’s how it should work.

  • miranda

    I agree that there are definite problems with the credit scoring system — not the least that we have to pay to look at our own information!

  • Daud Sharif

    I have a slightly different suggestion:

    Allow everybody credit upto have 5 times their salary. This should be at 0% insterest rate and with delayed payments for the duration of next 8 years.

    This will allow people to payoff their mortgages, credit cards, car loans etc. and start saving money for the next eight years to replenish the lost values of 401K plans.

    It will also allow people have peace of mind and the resulting political & tranquility, thus saving millions of marriages from collapsing or saving people from committing suicide.

    It will also save the childhoods of countless children instead of being scarred by this financial storm brought on artificially by the over-greedy practices of banks.

    I think our bankers and wall street types live in a fantasy land, quite disconnected with the lives of the ordinary Americans. If they were able to reap the benfit of their greedy schemes, then let them fail now because they will never learn.

    We need to usher in a new era of responsible banks sans the continuation of greedy schemes of the past. Who in the right mind would offer 100′s of credit cards to every household every year or extend credit to the pets?

  • Miranda Marquit

    An interesting thought. At any rate, I agree that instead if always taking a top down approach, things would work out better with a bottom up approach. If regular folks could pay off their obligations, then it would help keep the banks from going under.

  • Daud Sharif

    Though, I am glad that we have Mr. Obama as president, but I am surprised by the naiveté, e.g. giving a handful of DVDs to Brown and Clinton unable to translate the word “reset” into Russian.

    This is not an ordinary recession. It is not just another business cycle. I have not seen large banks going bankrupt in past recessions.

    I am hearing of anger among the educated middle class that I have never felt before. Perhaps it is the internet and the easy flow of information (sans the usual spins of the recent past), or perhaps others are also realizing that this is not an ordinary recession. I am even hearing of people planning to spend the recession out of the country, in places like Argentina or Brazil etc. for the next 8-10 years. Unbelievable! Other, ordinary folk are taking about revolution in 21st century America. Government better pay heed.

    Anyways, we need a way to reset our economy and save the vast majority of the middle class from the trap set by the unscrupulous banks of our times.

    A few trillions given to the banks has not worked (the same banks are now charging 30% interest rates and cutting our credit limits). How many tens of trillions will the government fork out to the banks before any trickle down or easing of the credit will happen?

    It would be wise to invest the tens of trillions in the people instead of the same banks that created the problem.