THE BIG QUESTION, May 8: Weighing the Bailouts

The Big Question is a feature where influential lawmakers, pundits and interest group leaders give their answers to a question that’s driving discussion in news circles around the country.

Some responses are gathered via e-mail, while others are gathered in person via tape recorder.

Today’s Big Question is:

Now that we know the results of the bank stress tests, were the bailouts worth it?

Read responses below from Dean Baker, Grover Norquist, Anna Baker and William Redpath.

Read the last Big Question here.

Dean Baker, Co-Director of the Center for Economic Policy and Research, said:

The question is not whether the bailout was worth it — we would have wanted to do something to support the financial system — the question is whether the taxpayers got a fair deal for their money. It is hard to say yes to that one.

The bailout was deliberately designed to hand banks money with the fewest possible conditions. As a result, the taxpayers have handed tens of billions of dollars to some of the richest people in the country for no reason whatsoever. The executives getting multi-million dollar bonuses from AIG, a bankrupt company, is the most visible example of such handouts, but far from the largest.

Taxpayers handed $12.9 billion (approximately 4 million SCHIP kid years) to Goldman Sachs through AIG and got absolutely nothing in return. They handed several hundred million more to Goldman by allowing it to get below market interest rates on loans guaranteed by the FDIC or directly from the Fed. Read the full response here.

Anna Burger, Secretary-Treasurer of the Service Employees International Union, said:

The stress tests prove what anxious shareholders, taxpayers and bank employees have been saying all along—the current banking model is a sinking ship that needs more than just a change in captain to address fundamentally unsustainable and irresponsible business practices that are bad for consumers, employees and dangerous for our economy.

Bank of America in particular has received $45 billion in TARP funds and now taxpayers could are on the hook for billions more to bailout the bank for its own bad behavior. Instead of gobbling up other financial institutions and paying $5.2 million in bonuses, Bank of America must clean house and find substantive means to reform a business model that was already in the red. Read the full response here.

William Redpath, Chairman of the Libertarian National Committee, said:

Leaving aside the almost certain unconstitutionality of the bailouts, it is very far from clear that we are any better off economically than we would have been without them. Indeed, we may be worse off. Certainly, the bailouts’ blow to economic freedom has been substantial. But, here is my prediction. When history with several years hindsight is written about this sordid episode, it will be seen as a perverse redistribution of wealth from taxpayers to financial elites. That’s when the answer to “Was it worth it?” will be clear.

Grover Norquist, President of Americans for Tax Reform, said:

No.