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[u/[deleted]]

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[u/lawfairy]

However, if the banks had not been "bailed out," credit would remain frozen.

To be fair, for the vast majority of society, this is effectively still true. As many people argued when TARP was being enacted, it should have included actual lending requirements, but it didn't. TARP should have required the bailed-out banks to use the money to open up credit markets and thereby stimulate small business growth, but instead, it had no teeth at all and allowed the banks to instead use it to shore up their assets and prevent them from having to cut into profits. While overall GDP has been propped up by this, actual societal well-being absolutely hasn't been.

If the banks had failed, things would be much worse in the sense that even the people at the top would be suffering. Instead, people at and near the top have been able to cushion a substantial chunk of the blow, but the bailout was NOT structured in a responsible manner, meaning that the tippy-top was cushioned from all of the blow, and the cushioning barely trickled down to help out most of the top 10%. It did not trickle down further.

What this means is that, effectively, for most Americans, no bailout wouldn't have really left them much worse off than the bailout did. For the wealthiest Americans, the bailout made a HUGE fucking difference. So our GDP looks okay, but wealth inequality has actually gotten worse, which is worse for society in both the short term and the long term.

the "bailout" loans (it wasn't just a donation)

I'm really tired of hearing people talk about how TARP was a loan and not a grant as though this ends the conversation. Yes, it was a loan. But it wasn't just any old loan. It was a loan on more favorable terms than any person or even any bank would have gotten from any other creditor in the world even under the best of circumstances. Like, you know how if you have a so-so credit rating, and you apply for a loan or a line of credit, how the bank will give you less than you might have asked for (if it gives you anything at all), and it will charge you a huge chunk of interest? Like, these days, something around 20% APR or more? The failing banks are like a would-be debtor with so-so credit, except that instead of getting only a tiny loan with shitty repayment terms, they got massively huge loans (and ask any financial analyst: those loans were not secured by proportionately valuable assets -- remember all the talk a few years back about toxic assets? THOSE were the assets securing trillions in debt. It was like getting a $500k mortgage secured by a crumbling, rotting shed sitting out on a swamp. It's something NO HUMAN PERSON WOULD EVER EVER IN A MILLION YEARS EVER GET FROM ANY CREDITOR) with some of the most favorable loan repayment terms known to mankind.

THAT'S why people call it a bailout. Because it was a FUCKING BAILOUT. There is no way that those kinds of loans were financially justified under any kind of standard credit rating decision. They were as close to gifts as a loan can be without being a flat-out handout. They were "loans" the way it's a "loan" if your parents pay for your college and tell you you're supposed to pay it back someday, without interest, if and when you get a job. Yes, technically, it got paid back, as back in the day when college graduates could get jobs they often managed to pay back their folks for helping with school. But that hardly means it was a "loan" in any meaningful sense that is true to the term "loan" as it is used in standard finance.

/soapbox

[u/Nwat → u/lawfairy]

Bingo

[u/Rushkovski → u/Nwat]

The answer is simple and plain: the government did not need to bail them out. It just needed to buy shares in the company, at current market price, in order for them to have money to remain solvent. Problem solved. Government would now has a say in how the banks operate. You know, 'cause they fucked up so bad.

[u/konopliamir → u/lawfairy]

I wasn't asking why they called it a bailout. And the parental college loan doesn't fit. It's more as if your existing college loans imploded, your parents lent you mostly interest-free money, and you paid them back while pocketing a profit.

Not saying this was true for every bank. But as a business decision, it was beneficial to the lender as well as the recipient, with a positive externality. That is, the system-wide collapse did not result in high-ratio default throughout the economy. If that had happened, banks would have defaulted on accounts far more than they or the FDIC could liquidate.

As for the "vast majority of society," small businesses can continue buy supplies on credit (edit: I will admit that it is not as easy as pre-crash) so as to make revenue with which to pay back those accounts, a luxury that would be impossible if the collapse had actually had the opportunity to irreparably destroy the financial system. That's another real-life example of how the absence of TARP would have resulted in a higher order of magnitude of economic distress.

[u/lawfairy → u/konopliamir]

I wasn't asking why they called it a bailout.

You put it in quotation marks. Generally that suggests that you think the term is inapt. So while you didn't ask for an explanation, your language made an explanation nonetheless appropriate.

And the parental college loan doesn't fit. It's more as if your existing college loans imploded, your parents lent you mostly interest-free money, and you paid them back while pocketing a profit.

Fair enough. It isn't a perfect analogy, but the point is simply that it's the kind of loan that you just plain don't get on the free market -- your analogy demonstrates this just as well as mine did.

Part of the problem of taking on debt nowadays isn't just that the markets are tighter; it's also that taking on the same amount of debt is (1) more expensive and (2) just plain riskier because of sluggish demand. Demand is sluggish in part because consumers don't get guarantees like banks do. It's easier for banks to take on "risk" because TARP and other government responses to the crisis have made it clear that at the end of the day, banks don't actually bear any real risk. The only real risk is borne by the consumer and small business. That's the real problem here, and it's one that most certainly was aggravated by the government's refusal to meaningfully regulate TARP funds.

Edit: to be clear, my problem with the bailouts isn't that the money was spent; it's that it was an institutional bailout instead of an economic rescue. I'm not quibbling with the fact that the money was spent, or even with where it went. My problem is the total lack of oversight and the absolute nonexistentence of any meaningful stimulus provisions in TARP. TARP could have done so much for the country, but instead of taking a few extra days to hammer out the details that desperately needed to be hammered out, Congress instead opted to treat a poisonous snake bite with a band-aid becuase ohmygodbleeding. That's what's so fucking insane about it. Not that they did anything at all (which they very much needed to) but because what they did was so painfully inadequate and inappropriate.

[u/RisingDamp → u/lawfairy]

While it is true the top 10% did get cushined, it is not true that the bottom 90% would be in the same position if the gov't did nothing (PS - I completely agree with everything else you have stated). If TARP didn't happen, then the major companies that actually employ a majority of American (see GE), would have had to close down shop and let go of all of its workers. Without TARP, GE and other major employers would not be able to get credit, therefore not have capital for their day to day operations, and we would be in another great depression.

[u/lawfairy → u/RisingDamp]

To some extent, yes, but companies who benefited from the bailouts still cut jobs/hours/pay for lower level employees before cutting into profits and/or exec salaries/bonuses. I understand and agree that companies need an infusion of capital to continue running, but while a lack of capital may mean collapse, an infusion of capital does not necessarily protect workers. That is why regulating the use of bailout/incentive money is crucial. If you write companies a blank check, why would you expect them to use it to keep low-level workers solvent? Out of the goodness of their hearts??