In my Bailout Blues posting on October 2, 2008, I reluctantly supported the bailout of the banks. I now regret supporting the 7.2 trillion dollar bailout because it has been a compete waste of money. The economy is not better, and, in fact, seems to have worsened since the bailout. There has been no financial oversight, and the banks have no discernible plan to improve things.
The mortgage crisis could have been solved for roughly $206 billion. Approximately 1 million homes have been foreclosed at an average price of $206,000. The Feds could have bought the nation’s entire supply of toxic mortgages for $206 billion. Even if the government only received half the value of the loans, the cost is $103 billion instead of $7.2 trillion.
Geoffrey Bagley’s case is instructive. His adjustable rate mortgage started at $1,300/month. After a few years his mortgage shot up to $2,400/month. He applied for and got a loan modification. His mortgage dropped to $2,000/month. The $2,000 became unaffordable when the weak economy reduced the overtime he was relying on to make payments. He lost his home. If the government had bought the loan, and had him pay $1300/month he would still be in his house. “The Office of the Comptroller of the Currency or OCC says new data shows more than 60 percent of loans modified in the first quarter of 2008 fell delinquent again in eight months.”
Many bank executives are still getting bonuses. The executives claim no taxpayer money will go to bonuses, but they cannot track the money because it is “fungible”. If the banks want a bailout, it is time to fire the executives and the boards who caused the problem. If they refuse to leave, then let the banks go bankrupt!
It is time to impose restrictions on any company that receives bailout money. Limit salary to $400,000, equal to the President of the United States. No bonuses or stock options allowed. Get rid of the perks. Taxpayers should not have to pay for corporate jets, country club memberships, chauffeurs, sporting events, etc. Make executives pay for their perks out of their own pockets. Make every bailed out company produce a detailed plan on how they propose to become profitable. These restrictions cannot be removed until bailout money is paid in full with interest.
The car companies, GM and Chrysler, want a bailout and $17.4 billion have been allocated to them. GM and Chrysler will initially get $4 billion each. Before the car companies receive any bailout money, they should be required to develop plans for automobiles that are more fuel efficient, use alternative fuels, and are better designed. Think Honda and Toyota. The January, 2009 issue of Consumer Reports rated family sedans in the $20,000 to $30,000 range. In the $20,000 to $25,000 range, only one American car ranked in the top ten, and it was rated tenth. In the $25,000 to $30,000 range, three American cars ranked in the top ten, and they ranked seventh, eighth and tenth. The US car companies have to produce better cars to remain competitive.
The Feds need to realize that the $7.2 trillion bailout demands financial oversight. If the executives of bailed out companies refuse to comply, then take the money back.