Lisa Simpson
Mar 17,2010
In: Finance

The People are Confusing TARP with Stimulus Package

The people are confusing TARP with stimulus package.

A discussion was held at Commonwealth Club of California hosted by Andrew Leonard of Salon.com. The speaker was Dr. Joseph Stiglitz of Columbia University. He sharply pointed that the way things were drifting it seemed that the economy would again go into a tailspin. His speech was compelling and brilliant with generous doses of commonsense, professional acumen, historical insight and political outlook. His opinion was that the government was over reacting to criticism and by retreating from certain bold steps it had initiated it was inviting trouble once again.

Stiglitz noted that in general the people are confusing TARP that had benefited the financial entities like the banks and lenders with the stimulus measures. He opined that the latter should have been more in scope so as to avoid a rerun of the crisis. He thought that the too little was done in the matter of stimulus and mortgages while too much was done for the banks. The financial regulation has not been decided as yet and remains a question mark.
Stiglitz interpreted the popular reaction to the bailout of banks as something understandable as regards its process, policies and results. He said that the bail out of banks was mainly the work of the Bush administration – a point that many of the Republicans at Tea Party gatherings are well aware of. It is difficult to accept a bail out of $89 billion for AIG that high jumped to $180 billion – especially when the public were kept in the dark about where the money was drifting. Later it was discovered that Goldman Sachs was benefiting – it being the shadow broker of the arrangement. It got $13 billion –the biggest slice of the pie. German and French banks came close on the heels of Goldman. The bailout amount is equal to the dollars spent as aid given to the developing nations by all the developed countries over a period of two years! It was all executed during the dark hours of night. Stiglitz said, “Quite frankly we got cheated.” It is but natural and justified for the people to feel enraged and frustrated.

As regards stimulus measures he felt that if the government now retreated at a juncture when a mere 40% of the stimulus dollars have been spent there is the chance of a double-dip recession. The biggest mistake the Obama government has done is underestimating the severity of the recession – especially the employment sector. But even if it had assessed it, the political realities would have prevented the government from going ahead with pouring more money into the stimulus funds – something Stiglitz thought would have been beneficial for the economy.