Friday, January 30, 2009

Why TARP #2 will still look like theft.

As Fed has become powerless (and all but irrelevant) in the recent months, the powers that be have been trying fiscal measures. The original TARP has now been recognized by most as a failure, mostly because the money pretty much went to line up the pockets of the bankers at virtually no upside for the taxpayer. See for example how Merrill Pay Was Down Only Slightly in 2008 From 2007 Levels. At the same time, most people don't realize how close the whole financial system was to a complete breakdown (as in, no ATMs, no credit cards working) in the October of 2008. It is quite likely that TARP has prevented that event. So even though the plan resembled theft much more than a rescue mission it did do some good.

Now we have Obama's proposed 825$ billion stimulus that is being debated in Congress; and on paper it looks better, since money seems to be intended to go to various 'productive' projects like education, infrastructure maintenance, etc.

I already wrote in the previous post about my distrust for any centrally planned initiatives, and about the dangers of fiscal recklessness, but for the moment I want to leave these aside and present you with a little piece from Bloomberg about how government projects actually work in practice: Hidden Bonuses Enrich U.S. Government Contractors. Here comes the choice cut:

...the government spent $368.4 billion on all contracts in 2008, and Republican Oklahoma Senator Tom Coburn estimates that about $100 billion of that was wasted.

US government actually managed to dwarf the numbers that caused recent outrage about Wall Street bonuses: 16$ billion in bonuses, compared to unknown trillions of taxpayer money spent on maintaining the financial system alive.

That is why I don't believe Obama's TARP will be more ethical than Paulson's. Money is still going to line up the pockets of the bureaucrats, just slightly different ones.

There is a way to effectively spend money for economy stabilization, but it is not what the corrupt politicians in Washington are doing. We could have much more bang for the buck spending this money where it really helps, but I probably should write a separate post about it.

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