Fool Poll: Do You Agree With Bailout Round 2?

Twelve days into 2009, and the bailout debate is back in full force, and oh, how we missed it! Back in November, I wrote:

The Bush administration said it would not seek the second $350 billion allotted in the bailout package ... Of course, an Obama administration might ask for the remaining funds come late January. Leaving a political debate aside, I'd say that's actually a pretty good likelihood ...

Well, neither panned out exactly like that. Eight days before inauguration, President-elect Obama has asked President Bush to request a second batch of TARP (Troubled Asset Relief Program) funds from Congress.

Congress could vote on releasing the funds as early as this week. No one knows how that vote will swing -- the original vote in September floored markets when it stalled in the House of Representatives -- but there's no shortage of grumbling concerning how the first $350 billion was put to work.

Perhaps rightfully so.

The original bailout strategy was to purchase troubled assets directly from banks. That plan was quickly jettisoned after it became apparent pricing assets no one wanted was a trillion-dollar guessing game. Price assets too low, and it doesn't help banks; price 'em too high, and taxpayers are left holding the bag. Or more simply put: heads, you lose, tails you lose.

The next best idea was to shovel mountains of cash into the coffers of banks like Wells Fargo (NYSE: WFC  ) , Bank of America (NYSE: BAC  ) , and JPMorgan Chase (NYSE: JPM  ) whether they wanted it or not. While safer for taxpayers, this idea was fraught with controversy since it (a) did squat to get banks lending again, and (b) provided virtually no transparency as to what the banks were doing with the money.

Were mistakes made? Definitely. Could the plan have been handled better? Absolutely. Has the entire plan been bungled? Perhaps. On the other hand, Ben Bernanke and Hank Paulson were given days -- if not hours -- to concoct a plan to save one of the largest and most complex industries in the world. Anyone who expected a flawless and seamless recovery was kidding themselves. What the bailout has done, and hasn't been given enough credit for, is prevented the financial system from complete systemic collapse.

Nothing's set in stone, but all signs point toward a second batch of funds being directed at homeowners facing foreclosure, rather than directly propping up banks. Then there's also General Motors (NYSE: GM  ) , Chrysler, and Ford (NYSE: F  ) , which will almost certainly be sidling up to the trough for more money in the year ahead. But no one really knows -- which, again, is one of the problems with TARP.

At any rate, what do you think about today's request for the remaining $350 billion of TARP funds? Take a second to weigh in via our Fool poll below. If you care to elaborate, you can fire away in the comment section as well.

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. JPMorgan Chase and Bank of America are Motley Fool Income Investor recommendations. The Motley Fool is investors writing for investors.


Read/Post Comments (8) | Recommend This Article (20)

Comments from our Foolish Readers

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  • Report this Comment On January 12, 2009, at 5:07 PM, TexasLonghorns wrote:

    Amazing, only in America could these so-called banks hold up the U.S. taxpayer and then turn around and refuse to even say where they are using the money. Horror stories galore abound about customers with years of good payments, outstanding accounts getting rates jacked up and credit denied and being treated generally like they were the ones holding up the bank.

    Enough to make you go to an all cash position.......which probably isn't such a bad idea.

  • Report this Comment On January 12, 2009, at 6:26 PM, DeeGenus wrote:

    Well, here we go. Up go mortgage interest rates. No free lunch.

    What many seem to have missed was the real cause of banking and Wall Street mess. It ends up with the Fed., Congress, and Presidents. What was supposed to happen didn't. The paper we bailed out was not intended to be held by Investment and Commercial Banking. Problem, the government forgot to tell the holders that. These loans were lucrative income and the banks held them instead of selling. OOPS!

    The Motley poll choices I cannot use because they are slanted and meaning is lost.

  • Report this Comment On January 12, 2009, at 7:43 PM, brwn8484 wrote:

    I guess that those of us that knew this was going to be mismanaged should just sit back and shut up. CDO's and Credit Agencies and politicians and Banks and auto companies all had part in this mess. But noone is going after real culprits.

    There is only one thing left to do when the crooks and politicians and Wall Street Fat Cats have scuttled the ship and she is going down fast and no amount of bailing is working any longer.

    Welcome to the USA home of the Greatest Ponzi scheme known in history of mankind. Where priveleged few scrxxed the average guy over and over over and over until there was no money left for moral and upstanding little guy.

    All the politicians had millions, so they didnt care. All the bankers had millions, so they didnt care. All the Wall Street fat Cats had millions so they didnt care. Problem is, since the middle class made all the millionaires, who's going to create jobs and pay for roads and taxes and healthcare. Now only the rich and politicians and crooks can scrxw each other. This might even be fun to watch except it is so sad that the majority of Americans are too apathetic to know or care about the real cause.

    So the messiah is going to come in and give away fictitious money to naive people who think that their savior can somehow walk his way across the troubled waters of global financial crisis without a clue as to real cause or solution to this mess. If only we could solve our problems with dollars printed on fictitious basis or with socialism or with bigger government. Perhaps.... just like we solved hunger or poverty or Aids or TB or malaria or........

    Wake up America..... better start figuring out how your going to tread water after the ship is no longer afloat.

  • Report this Comment On January 12, 2009, at 9:51 PM, matttheboatman wrote:

    Longhorn - Don't you get it? After anticipated losses there is no money to lend. Banks lend money on assets and get rates of return of about 5%. But, if the underlying assets are going down in value by 20%, 30% or more likely 50% in a year, they need to hold cash to survive. They just can't say this out loud. US is giving 'em billions and they will need billions more - not to lend, but to survive. Telling a bank it should lend is like telling your kids to eat ice cream - it is what they do if they can. Matt

  • Report this Comment On January 12, 2009, at 11:04 PM, 181736065 wrote:

    ha ha ha..

    Time to short equities (again!).

    Propping up assets may not work anymore . It never does in the end.

    Cash may be king again in 2009. If you are not at least 80% out of the market.. oh well, believe what you want.

  • Report this Comment On January 13, 2009, at 1:12 AM, WilyInvestor wrote:

    "On the other hand, Ben Bernanke and Hank Paulson were given days -- if not hours -- to concoct a plan to save one of the largest and most complex industries in the world."

    Which, is why I've always opposed the plan :) Too many unseen consequences with this let's-throw-money-at-it-and-see-what-happens mentality. And, generally speaking, anything involving a FUD (Fear, uncertainty and doubt) campaign, which is exactly what Paulson and Bernanke did, has ulterior motives. The Financial system seems to be safe for now, but since no one really knows what's going on how do we know for sure it will actually be a sustainable help? Food for thought.

  • Report this Comment On January 13, 2009, at 8:09 AM, ProsperoScot wrote:

    The line in the sand simply keeps moving. The Fed thought it OK to bail out Bear Stearns, but drew the line at Lehman Bros. Then $700Bn gets signed off by Congress, with Obama looking for another similar figure. Chances are that by the Fall when the global depression is really biting, then another $1Trillion will be requested to protect jobs, US industries, etc. As Europe and Asia pursue similar "protectionist" measures somebody in the Administration might (only might) wake up to the fact that this global printing press simply makes matters worse. Keeping people in jobs is humane, but mortgaging future generations to huge debt burdens is surely just as immoral. Sooner or later, someone has to pay the piper. Or did I misunderstand Economics 101? Perhaps they taught us that spending your way out of debt is the way to go - and there was me thinking that this was considered the receipe for inflation and other dangers. Perhaps Francis Fukuyama from the Brookings Institute will revise "The End of HIstory" and suggest that communisim (or at least its cousin - socialism) actually won against capitalism, rather than his original thesis which put capitalism on the winning side!

  • Report this Comment On January 13, 2009, at 11:01 AM, theplater wrote:

    Whilst in most usual cases I abhore the use of public funds to bail out companies it appears to me that if the government doesn't intervene there is serious risk of large scale economic disaster leading into a deflationary spiral.

    If this happens the US and the world could enter a depression hurting not only the weak companies but all companies leading to mass unemployment.

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