SCFI 2009
Bailout File
Page 1
Index
AFFIRMATIVE / PRO
History Proves that Bailouts Work ....................................................................................................................... 4
Bailout Good ....................................................................................................................................................... 7
Moral Obligation to act ........................................................................................................................................ 8
Auto Bailout ......................................................................................................................................................... 9
Auto Bailout ....................................................................................................................................................... 10
Auto Bailout ....................................................................................................................................................... 11
Auto Bailout ....................................................................................................................................................... 12
Auto Bailout ....................................................................................................................................................... 13
Psychology Impact ............................................................................................................................................ 14
Deficit Spending Good For Economy ................................................................................................................ 15
Housing Problem............................................................................................................................................... 16
Housing Problem............................................................................................................................................... 17
Consumer Confidence ...................................................................................................................................... 18
Bailouts Save Global Economies ...................................................................................................................... 19
Global Links ...................................................................................................................................................... 21
Global Impacts .................................................................................................................................................. 22
AIG .................................................................................................................................................................... 23
Inflation ............................................................................................................................................................. 24
Bailout Helps Competition ................................................................................................................................. 25
Bailout Helps Competition ................................................................................................................................. 26
Small Businesses .............................................................................................................................................. 27
Business Transparency ..................................................................................................................................... 28
Taxpayers and the bailout ................................................................................................................................. 29
Liquidity Good ................................................................................................................................................... 30
A2: deficit hurts Dollar Value ............................................................................................................................. 31
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
SCFI 2009
Bailout File
Page 2
NEGATIVE / CON
History Proves Bailouts Don’t Work .................................................................................................................. 33
History Proves Bailouts Don’t Work .................................................................................................................. 34
Government Bailouts Bad ................................................................................................................................. 35
Government Bailouts Bad ................................................................................................................................. 36
Government Bailouts Bad ................................................................................................................................. 37
Government Bailouts Bad ................................................................................................................................. 39
Government Bailouts Bad ................................................................................................................................. 41
Politicians Are Not Addressing The Real Problem ............................................................................................ 42
International Bailouts Don’t Work ...................................................................................................................... 43
Auto................................................................................................................................................................... 44
Deficit Bad ......................................................................................................................................................... 45
Deficit Bad ......................................................................................................................................................... 46
Deficit Bad ......................................................................................................................................................... 47
Debt Bad ........................................................................................................................................................... 48
A2: Decreasing deficit ....................................................................................................................................... 49
Balancing the Budget Not Needed .................................................................................................................... 51
A2: Housing Problem ........................................................................................................................................ 52
A2: Consumer Confidence ................................................................................................................................ 53
Dollar Value Impact ........................................................................................................................................... 54
Dollar Value Impact ........................................................................................................................................... 55
Free Market Good ............................................................................................................................................. 56
Bailouts Bad For Global Economy .................................................................................................................... 57
Global Impacts .................................................................................................................................................. 58
Global Links ...................................................................................................................................................... 59
A2 Inflation ........................................................................................................................................................ 60
A2: Competition................................................................................................................................................ 61
A2: Small Businesses helped ........................................................................................................................... 62
A2:Stability Bailouts .......................................................................................................................................... 63
A2 : International Realations increase ............................................................................................................... 64
A2: Business Transperancy .............................................................................................................................. 65
A2: Taxpayers and the Bailout .......................................................................................................................... 66
A2: Taxpayers and the Bailout .......................................................................................................................... 67
A2: Taxpayers and the Bailout .......................................................................................................................... 68
Public Sector Burden ........................................................................................................................................ 69
A2: Company Risk taking .................................................................................................................................. 70
A2:TARP ........................................................................................................................................................... 71
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
SCFI 2009
Bailout File
Page 3
Aff
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
SCFI 2009
Bailout File
Page 4
History Proves that Bailouts Work
Marshall Plan worked to save the European Economy
Grogin, Robert C. (2001), Natural Enemies: The United States and the Soviet Union in the Cold War, 1917-1991
The years 1948 to 1952 saw the fastest period of growth in European history. Industrial production
increased by 35%. Agricultural production substantially surpassed pre-war levels. The poverty and
starvation of the immediate postwar years disappeared, and Western Europe embarked upon an
unprecedented two decades of growth that saw standards of living increase dramatically.
Chrysler paid back all bailouts, and increased business
Nankin, Jesse 2009, ProPublica http://www.propublica.org/special/bailout-aftermaths#
In 1979 Chrysler suffered a loss of $1.1 billion. That year the corporation requested aid from the
government. In 1980 the Chrysler Loan Guarantee Act was passed, which provided $1.5 billion in loans to
rescue Chrysler from insolvency. In addition, the government's aid was to be matched by U.S. and foreign
banks. By 1983, seven years earlier than the scheduled deadline, Chrysler had paid back its loan with the
aid of the guarantees from the U.S. government. The corporation bought back the 14.4 million stock
warrants given to the government in exchange for the loan guarantee. Because Chrysler's finances had
improved and its stock had bounced back -- it reported $1.7 billion in profits for the second quarter of 1984
-- the government netted a profit of more than $660 million from its bailout investment.
9/11 loans brought the government money in the end
Nankin, Jesse 2009, ProPublica http://www.propublica.org/special/bailout-aftermaths#
The terrorist attacks of September 11 crippled an already financially troubled industry. To bail out the
airlines, President Bush signed into law the Air Transportation Safety and Stabilization Act, which
compensated airlines for the mandatory grounding of aircraft after the attacks. The act released $5 billion in
compensation and an additional $10 billion in loan guarantees or other federal credit instruments. Reports
varied on the total net profit, ranging from $141.7 million to $327 million. The loan guarantee program suffered
one loss of about $23.2 million when ATA Airlines filed for bankruptcy protection.
1971 loan to Lockheed was paid back plus interest do that the Government made money
Nankin, Jesse 2009, ProPublica http://www.propublica.org/special/bailout-aftermaths#
In August 1971, Congress passed the Emergency Loan Guarantee Act, which could provide funds to any
major business enterprise in crisis. Lockheed was the first recipient. Its failure would have meant significant
job loss in California, a loss to the GNP and an impact on national defense. By 1977, Lockheed had paid
off its loans, and its dependency on the federal loan guarantees came to an end. The government earned
about $112.22 million in loan fees.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
SCFI 2009
Bailout File
Page 5
Bailout of Freddie Mac and Fannie Mae will relieve Global Banks
BBC News,2008 (BBC News, September, 2008, US rescues giant mortgage lenders)
As a result, the US government's bail out of Freddie Mac and Fannie Mae - and the hope that it can see normality return
to the American mortgage market - is an immediate and direct boost to a great many global lenders.
It will also inevitably greatly relieve global central banks, such as the Bank of England and the European Central Bank,
which since last year have had to help UK and European lenders affected by the global credit squeeze.
Chrysler was successful after government bailout of 1980
Pro publica Inc in 09
By 1983, seven years earlier than the scheduled deadline, Chrysler had paid back its loan with the aid of the guarantees
from the U.S. government. The corporation bought back the 14.4 million stock warrants (What's this?)A security entitling the holder to buy a proportionate
amount of stock at some specified future date at a specified price, usually one higher than current market. This "warrant" is then traded as a security, the price of
which reflects the value of the underlying stock. Warrants are usually issued as a "sweetener" bundled with another class of security to enhance the marketability of
the latter. Warrants are like call options, but with much longer time spans -- sometimes years. (Washington Post) given to the government in exchange for the loan
guarantee. Because Chrysler's finances had improved and its stock had bounced back -- it reported $1.7 billion in profits for
the second quarter of 1984 -- the government netted a profit of more than $660 million from its bailout investment.
Lockheed Was Successful in paying back the Government loan
Lockheed, 1971
By 1977, Lockheed had paid off its loans, and its dependency on the federal loan guarantees came to an end. The
government earned about $112.22 million in loan fees.
The Marshall plan bailout helped the European economy recover
Charles M. Dobbs 04 Economic Cooperation plan of 1948 (Marshal Plan) Major Acts of Congress | 2004 |
http://www.encyclopedia.com/doc/1G2 -3407400075.html
Over the next four years, the United States provided $13.3 billion (more than $120 billion in current dollars) and the
European economy revived. Britain, France, and Italy avoided collapse; the western zones of Germany, known as the
Federal Republic of Germany, recovered from wartime devastation and postwar troubles. Although historians have debated
and will continue to debate the measurable effectiveness of the Marshall Plan, most observers agreed it was needed and it
helped achieve the revival of the western European economy and consequently of western European society
History Proves that Foreign Bailout Works
Dulles 1993 (Allen W, the Marshall Plan, Director of the CIA)
On 3rd April, 1948, Harry S. Truman signed the first appropriation bill authorizing
$5,300,000,000 for the first year of the ERP. Paul G. Hoffman was appointed as head of
the Organization for Economic Cooperation (OEEC) administration and by 1951 was able
to report that industrial production in Western Europe had grown 30 per cent since the
beginning of the Second World War.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
SCFI 2009
Bailout File
Page 6
Mexico Proves that American Bailouts Help the Global Community
Rehman in 2004 (Scheherazade S, THE NEW AMERICAN HEGEMONY?: ARTICLE: American Hegemony: If Not US, Then
Who?, Connecticut Journal of International Law
* Ph.D. Director of the European Union Research Center, Associate Professor of International Finance/Business and Associate Professor of International Affairs, The
George Washington University.)
Yet another sign of American economic hegemony is its role in the recent financial crisis bailout of emerging market economies
where the U.S. Treasury contributed the lion's share in conjunction and through the auspices of the International Monetary Fund
(IMF). For example, America alone allocated US $ 20 billion to assist in the aftermath of the 1994-1995 Mexico financial
crisis compared to the IMF's total US $ 17.5 billion commitment. n45 Not only have American bailouts salvaged these
economies during the crisis, but their subsequent recoveries have also been dependent on using the U.S. as a market of
first resort (for exports). n46 For example, in the aftermath of the 1977 Asian financial crisis, South Korea achieved [*413] a growth surplus only a year after its
economy crashed while simultaneously increasing its merchandise goods trade surplus balance by US $ 31 billion, of which a little less than half was a result of
exports to the American market. n47
Asia Proves that American Bailouts Help the Global Community
Rehman in 2004 (Scheherazade S, THE NEW AMERICAN HEGEMONY?: ARTICLE: American Hegemony: If Not US, Then Who?, Connecticut Journal of
International Law
* Ph.D. Director of the European Union Research Center, Associate Professor of International Finance/Business and Associate Professor of International Affairs, The
George Washington University.)
Yet another sign of American economic hegemony is its role in the recent financial crisis bailout of emerging market economies where the U.S. Treasury contributed
the lion's share in conjunction and through the auspices of the International Monetary Fund (IMF). For example, America alone allocated US $ 20 billion to assist in
the aftermath of the 1994-1995 Mexico financial crisis compared to the IMF's total US $ 17.5 billion commitment. n45 Not only have American bailouts
salvaged these economies during the crisis, but their subsequent recoveries have also been dependent on using the U.S. as a market of first resort (for exports). n46
For example, in the aftermath of the 1977 Asian financial crisis, South Korea achieved [*413] a growth surplus only a
year after its economy crashed while simultaneously increasing its merchandise
goods trade surplus balance by US $ 31 billion, of which a little less than half was a result of exports to the American
market. n47
Franklin National Bailout of 1974 Helped Americans from the Rule of Corrupt Business Leaders
Pro Publica Inc in 09 (http://www.propublica.org/special/bailout-aftermaths#penncentral)
As the story behind Franklin National's failure unfolded, evidence emerged of corruption and shady business practices
among the bank's executives -- several were eventually convicted. With the need for further intervention apparent, the
FDIC stepped in as receiver that same year and sold Franklin National's104 branches and other assets to European
American Bank. By 1981 the FDIC had sold Franklin assets worth about $5.1 billion. The agency was still owed another
$185.3 million in interest.
Chrysler Bailout of 1883 proves a success for America
ProPublicaInc09 (http://www.propublica.org/special/bailout-aftermaths#penncentral)
By 1983, seven years earlier than the scheduled deadline, Chrysler had paid back its loan with the
aid of the guarantees from the U.S. government. The corporation bought back the 14.4 million stock
warrants (What's this?) given to the government in exchange for the loan guarantee. Because
Chrysler's finances had improved and its stock had bounced back -- it reported $1.7 billion in profits
for the second quarter of 1984 -- the government netted a profit of more than $660 million from its
bailout investment.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
SCFI 2009
Bailout File
Page 7
Bailout Good
Washington might make money on bailout
Watson September 2008 (William, What now?; Yes, $700 billion is a lot of money, but the net cost might be less: If the bailout works, the government might
even make money on the investment, The Gazette)
The bailout might be like democracy itself, the worst possible alternative except for all the others. Yes, $700 billion is a lot of money - five per cent of the annual
value of U.S. economic output. But the net cost might be much less:
If the bailout works, the mortgage-backed securities the government
will have bought for 30 or 40 cents on the dollar might pay off at 60 or 70 or even 100 cents. Washington might even
make money on the deal.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
SCFI 2009
Bailout File
Page 8
Moral Obligation to act
Throughout history America has had an obligation to do anything and everything to
ensure political stability and peace through financial assistance
Marshall 1947 (George, Secretary of State, speech at Harvard University (5th June, 1947))
It is logical that the United States should do whatever it is able to do to assist in the return of normal economic
health in the world, without which there can be no political stability and no assured peace. Our policy is directed
not against any country or doctrine but against hunger, poverty, desperation, and chaos. Its purpose should be
the revival of a working economy in the world so as to permit the emergence of political and social conditions in
which free institutions can exist.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
SCFI 2009
Bailout File
Page 9
Auto Bailout
Big three Bankruptcy Undermines society
Bob
Herbert, the New York Times, ‘Drop Dead’ Is Not an Option, November 17, 2008
It’s not just General Motors or Chrysler or Ford. The U.S. auto industry is the cornerstone of American manufacturing. It supports millions of
jobs, directly or indirectly, in a vast array of businesses. Start with the thousands of parts in each vehicle. They are produced by suppliers across the country, from
one coast to the other. Those supplies have to be manufactured, packaged and transported. Truck drivers, railway systems and shipping companies are involved. And, of course,
there are dealers everywhere. And the auto repair industry. And the insurance industry. And vast systems of advertising supporting every kind of job you can imagine, from
messengers to accountants to filmmakers and beyond. All of that advertising funnels absolutely crucial revenues to television, magazines, newspapers — you name it
. If G.M.,
which is on life support, or Ford or Chrysler were to go bankrupt, the reverberations would kill the jobs of entire armies of American
workers
It would undermine the standard of living of hundreds of thousands of families and shutter the entrances of untold
numbers of small and intermediate businesses.
2 of the big 3 have emerged from bankruptcy due to the bailouts
PBS 09 http://www.pbs.org/newshour/updates/business/july-dec09/gm_07-09.html In one of the fastest turnarounds for a company of its size,
it took just 40 days for lawyers to straighten out the automaker's debt and contracts. Henderson told reporters GM would
repay about $50 billion in government loans ahead of a 2015 deadline. The bulk of the company's assets, including core brands Chevrolet
and Cadillac, were transferred to a company controlled by the U.S. government, Reuters reported. Lawyers tackled a 2-foot pile of documents in an all-night session,
according to an AP source. Another of Detroit's Big Three automakers, Chrysler Group LLC also emerged from bankruptcy
earlier this year in just 42 days. GM's bankruptcy was shorter than Chrysler's, even though Chrysler is a smaller company.
Auto industry key to economy
Canada NewsWire, June 8, 2005, Wednesday, DOMESTIC NEWS, 349 words
John O'Handley, president of CAW Local 1520 in St. Thomas, said the
analysis highlights the critical role that the auto industry has played in the
local economy for years. "Without a healthy auto industry our communities
would have a lot fewer good jobs and would not have a strong enough tax base
to support important public services like hospitals and schools."
David Binns, president of CAW Local 88 in Ingersoll, said that all levels
of government as well as the industry must help to not only maintain, but to
also further build the auto assembly and parts industries. "On top of the
direct manufacturing jobs, the industry stimulates an estimated 36,000 jobs
throughout the local economy," Binns said.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
SCFI 2009
Bailout File
PF
___ of ___
Auto Bailout
GM is consulting their creditors in order to form a plan to make it out of the recession
Zerillo in 2008 (Nicole, November 24, 2008, Big Three aim to explain bailout to media, public, PR Week (US))
The largest US automaker is trying to communicate that the credit crisis thwarted its efforts to put the company in
good stead, such as a historic restructure and a competitive negotiation agreement with the UAW International Union
in 2007.
'Our point is GM had done things to turn itself around, and that this was interrupted by plunge in sales and revenues,
not caused by anything GM had control over,' Wilkinson said.
Wilkinson said it is being aided by a number of PR firms, as well as its internal staff.
'We're moving very, very fast,' said Wilkinson 'We've engaged a full range of PR operations, so I wouldn't want to
single any of them out.'
Last week, the company used its Web site, GMFactsAndFiction.com, to post a YouTube video presenting the 'ripple
effect' that it believes the collapse of GM, Ford, and Chrysler would have on the US economy. GM also recently
called on its employees to contact legislators. That message was duplicated on the Web site with links for the public,
suppliers, and dealers to contact lawmakers.
The auto industry needed a bailout in order to climb out and make progress despite
the recession
Zerillo in 2008 (Nicole, December 1, 2008
Big Three can learn from comms mistakes PR Week (US))
Michelle Krebs, senior editor of Edmunds' AutoObserver.com and president of the Automotive Press Association in
Detroit, says the automakers were facing a difficult challenge, given the 'long, bad reputation' of domestic
automakers. While they are trying to reach Main Street, she says, 'what's stunning to me is the long memories of the
people who bought cars from the Big Three many years ago ... their reputation still lags,' despite product
improvements. .
'People group the Big Three together a lot, and they are so different,' says Tom Eisbrenner, president of Eisbrenner
PR. 'They needed to go in with a cohesive set of messages.'
We must not let the Auto industry fail
The Register, 2008 (Published: Sunday, November 16, 2008)
Congress must bail out our auto industry
Three weeks ago, President-elect Barack Obama asked President George W. Bush to prop up the American auto industry on the ground that
letting (the American Auto Industry) collapse would devastate the American economy, conceivably beyond the point
of repair. He is right! The death of the industry that was the “arsenal of democracy” during World War II would plunge
the United States into a prolonged recession and send an economic tsunami around the globe — likely decimating
the economies of Canada, western Europe and Japan as well.
The auto industry is not the financial industry — it is not populated primarily by white collar, educated executives,
lawyers and money men. The auto industry employs tens of thousands of blue collar, unskilled laborers — people
who spend money rather than horde it.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
10
SCFI 2009
Bailout File
PF
___ of ___
Auto Bailout
Auto Industry Impact
The Register, 2008 (Published: Sunday, November 16, 2008)
If these most recent bailouts had not been passed, the US auto industries would have collapsed. The effect of this
would have been devastating. The US economy would completely crash, due to a gigantic loss of jobs. With so many
people unemployed, the economy would suffer greatly. As stated, if the US poor economic state continues for long
without the bailouts, the economies of other major companies would have begun to suffer as well.
Auto industry second most important possession; auto output highest in US
McAlinden, 2003 (Sean P, Economic Contribution of the Automotive Industry to the U.S.Economy, Economics and Business Group Center for
Automotive Research)
The motor vehicle is the second most important possession of the great majority of Americans
after housing. In no other society does the motor vehicle play such a large role in the lives of
citizens and the economy in general. Our study describes the economic contributions of the
motor vehicle to the U.S. economy, to a multitude of U.S. industries in the retail, manufacturing
and service sectors, and to individual Americans.
The automotive industry produces a higher level of output in the United States than any other
single industry, and this output has been growing. Figure 1.5 shows a noteworthy record of
growth in the constant dollar value of automotive output during the 1987-2002 period. The U.S.
Economic Contribution of the Automotive Industry to the U.S. Economy 6 – An Update
Bureau of the Census (USBOC) produces the data series illustrated in figure 1.5 for the Bureau
of Economic Analysis of the U.S. Department of Commerce (USDOC). The dollar totals are
estimates of the retail value of light motor vehicles sold to individuals, businesses, and
governments in a given year. They include the value contributed by new vehicle dealerships.
The figures are adjusted for import value and inventory adjustment between years. The figures
thus represent the U.S. value-added for vehicles sold in the United States.
Automakers won’t survive past 2009 if they don’t get bail
Gatdula November 2008 (Jerry, Trade tripper; cars, plans, and bailouts,
Businessworld)
Now US automakers Ford, GM, Company Dossier and Chrysler have been going to Washington to declare that if
they are not given a bailout (or a subsidy) of $25 billion they won't survive beyond 2009. In effect, what they're saying is that,
because of their inability to handle the challenges brought on by the credit crisis, which everybody is experiencing anyway, they should be given a
portion of the $700 billion that is supposed to rectify the real problem, that is the financial sector
If the Gov does not save the Auto Industry Taxpayers will pay for it
Pawa, 2008 (Matthew F, Saving Detroit - from itself, The Boston Globe)
The government should not provide taxpayer money to companies whose leaders remain hostile to the massive fuel economy improvements and greenhouse
gas emissions reductions that are vital to our energy and environmental security. Detroit is going broke because of a consistent history of bad decisions, bad
management, and bad attitude. The only way to change that culture is to fire the management.
Letting these companies die also should be off the table. They
employ more than 200,000 people. These workers, their company
towns, the dealerships nationwide, and millions of other workers reliant on the automobile industry would face
economic catastrophe if the companies fail. Taxpayers would likely pick up the costs of pensions and other liabilities .
The social costs would be enormous.
If taxpayers spend billions on a company like GM, which currently has a market value of $1.8 billion, we should have ownership. Congress should create a
government corporation, charge it with buying a controlling stake in struggling, domestic automobile manufacturers, and give it a clear mission to shake up these
companies and produce the clean, green cars of the future.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
11
SCFI 2009
Bailout File
PF
___ of ___
Auto Bailout
The auto Industry is the Cornerstone of American Manufacturing
Herbert 08 (Bob , ‘Drop Dead’ Is not an Option, New York Times)
It’s not just General Motors or Chrysler or Ford. The U.S. auto industry is the cornerstone of American manufacturing.
It supports millions of jobs, directly or indirectly, in a vast array of businesses.Start with the thousands of parts in
each vehicle. They are produced by suppliers across the country, from one coast to the other. Those supplies have
to be manufactured, packaged and transported. Truck drivers, railway systems and shipping companies are involved.
And, of course, there
are dealers everywhere. And the auto repair industry. And the insurance industry. And vast systems
of advertising supporting every kind of job you can imagine, from messengers to accountants to filmmakers and
beyond. All of that advertising funnels absolutely crucial revenues to television, magazines, newspapers — you name
it. If G.M., which is on life support, or Ford or Chrysler were to go bankrupt, the reverberations would kill the jobs of
entire armies of American workers. It would undermine the standard of living of hundreds of thousands of families
and shutter the entrances of untold numbers of small and intermediate businesses.
The Impacts Of Auto Industry Failure Turn Global
The Register 08 (Congress Must bail out our Auto Industry)
Three weeks ago, President-elect Barack Obama asked President George W. Bush to prop
up the American auto industry on the
ground that letting it collapse would devastate the American economy, conceivably beyond the point of repair.
He is right! The death of the industry that was the “arsenal of democracy” during World War II would plunge the United States into a
prolonged recession and send an economic tsunami around the globe — likely decimating the economies of Canada,
western Europe and Japan as well.
The auto industry is not the financial industry — it is not populated primarily by white collar, educated executives,
lawyers and money men. The auto industry employs tens of thousands of blue collar, unskilled laborers — people
who spend money rather than horde it.
Auto industry is critical to the Economy
Boer 08 (Roberta, Help Detroit Big 3, but add strings)
We'll all get dinged hard in the chain-reaction crash that would happen if we slam on the auto industry's brakes. Last month, the Ann
Arbor-based Center for Automotive Research looked at what would happen to the national landscape without
this sector of the economy, and the immediate impact would be devastating. Counting direct, supplier,
and spinoff employees, almost 3 million people would lose their paychecks.
In economic terms, the end of Detroit in 2009 would stunt personal income nationwide by nearly $151
billion, according to CAR, which projected that government losses that year would total more than $60 billion.
The auto industry is clearly and inextricably entangled with the overall economy. The social costs of letting even
one U.S. automaker meet a free-market fate and collapse might constitute too high a price tag
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
12
SCFI 2009
Bailout File
PF
___ of ___
Auto Bailout
Auto Industry Reports Record Job Losses in this troubled economic time
AP 08 (Barney Frank: Failure to help Detroit would be a disaster)
House Financial Services Committee Chairman Barney Frank, a Democrat, said failure of Congress to act now to help Detroit’s Big Three automakers "would be
a disaster."
Senate Majority Leader Harry Reid, a Democrat, said the Labor Department’s report of 533,000 job losses in November — the
biggest job loss in 34 years — makes the auto bailout even more urgent.
"We must ... prevent the auto companies from collapsing, or we risk adding millions of more Americans to the
unemployment line," Reid said, noting that "more than 10 million workers (are) already unemployed."
Car-makers Urged to Reform Using Bailout Money
BBC News, 08, "Bush unveils $17.4bn car bail-out"
GM Chief Executive Rick Wagoner said his company would focus on "fully and rapidly implementing the restructuring
plan that we reviewed with Congress earlier this month".
"It's really the blueprint for a new General Motors, one for our second 100 years," he said.
US President-elect Barack Obama urged the carmakers not to "squander this chance to reform bad management
practices" in the industry.
"The auto companies must bring all their stakeholders together, including labour, dealers, creditors and suppliers, to make the hard choices necessary to achieve
long-term viability."
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
13
SCFI 2009
Bailout File
PF
___ of ___
Psychology Impact
The bailout stop the $140 billion psychological problem
Amadeo 2008, (Kimberly, How the government mortgage bailout affects the US economy and you,
About.com)
Kimberly publishes WorldMoneyWatch.com. She has 25 years experience in senior-level economic
research and business planning for The Arizona Republic, Arizona Public Service, and The Rockport
Company,among other companies. Kimberly was also an urban planner at the Boston Redevelopment
Authority
First, the bailout will stop the panic in the financial markets that led to a record $140 billion being
pulled out of money-market accounts, usually considered the safest of investments. That's because
investors were moving the funds to U.S. Treasuries, causing yields to drop to zero. To stem the panic,
the Treasury agreed to insure these funds for a year. In addition the SEC banned short-selling of
financial stocks until October 2 to reduce volatility in the stock market. (Source: WSJ, Shock Forces
Paulson's Hand, September 20, 2008)
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
14
SCFI 2009
Bailout File
PF
___ of ___
Deficit Spending Good For Economy
Deficit spending is good for the economy
Stelzer in 2005
Irwin M. Stelzer. [Director of Economic Policy Studies at the Hudson Institute]. "Do
Deficits Matter?" Weekly Standard. February 15, 2005.
http://www.weeklystandard.com/Content/Public/Articles/000/000/005/245esggv.asp?pg=1.
WHEN DICK CHENEY SAID, "Deficits don't matter," economists took that as proof of the economic illiteracy of the
Bush administration. But it turns out there is a case to be made that Cheney was onto something.
Which brings us to the economic level. The deficits that Bush ran up in the years in which the country was teetering
on the verge of a serious recession had the beneficial effect of righting the economy. In that sense, deficits not only
didn't matter, but were a force for economic good.
Deficit spending spurs economic growth- putting money back in the
hands of consumers will create a new surge of consumption, boosting GDP
Renshaw in ’99
[Professor of History, Sheffield University] “Was There a Keynesian Economy in the United States Between 1933 – 1945?” 1999. Journal of Contemporary
History.
Yet in office, facing the urgent necessity of rising unemployment, FDR imported from Europe the long tradition of using public works to alleviate recession. In
March 1933, Congress voted 3.3 billion dollars for public works — equal to the entire cost of the federal government in 1930 — which it believed could be spent
in two or three years. With unemployment stabilizing at around 22 per cent of the workforce by 1934, Keynes and Harold Laski argued the case for more of the
same. The answer
to the question, ‘Can America spend its way to recovery?’ they said was ‘Why obviously!’. An economy
produces in response to spending — it was absurd to suppose one could stimulate economic activity by declining to
spend. When individuals failed to spend enough to maintain employment, the government must step in and do it for
them. ‘It might be better if they did it for themselves’, the article concluded, ‘but that is no argument for not having it done at
all.’
Deficit spending pushes the economy towards consumption
Renshaw in ‘99
[Professor of History, Sheffield University] “Was There a Keynesian Economy in the United States Between 1933 – 1945?” 1999. Journal of Contemporary
History.
Capitalism did not enjoy a built-in tendency towards equilibrium at a high level of employment. Depression-ridden
economies required government spending in excess of receipts to shift money from the saving stream to the
consumption stream. In short, the need was for a compensatory fiscal policy which would operate at times with an
unbalanced budget and at times with an over-balanced budget.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
15
SCFI 2009
Bailout File
PF
___ of ___
Housing Problem
Current economic crisis on housing bubble
Taneenu November 2008 (Manay, How a ‘perfect storm’ led to the economic crisis, CNN)
Opinions vary on when and where to begin the story, but many
experts trace the origins of the current economic situation to the
housing bubble that came about earlier this decade.
Housing prices started trending downward, and by 2007 the bubble had burst.
"It was a perfect storm," Velshi said. "It was a lack of regulation, it was greed and creativity in the financial industry ,
and it was an American dream that got off track."
1/10 American Home Mortgages Either Delinquent or in Foreclosure
The New York Times, 09, Sheryl Gay Stolberg and Edmund L. Andrews, "$275 Billion Plans Seeks to Address Housing Crisis"
“This plan will not save every home, but it will give millions of families resigned to financial ruin a chance to rebuild,” Mr. Obama told a crowd here, in one of the
communities hardest hit by the housing crisis. “It will prevent the worst consequences of this crisis from wreaking even greater havoc on the economy. And by
bringing down the foreclosure rate, it will help to shore up housing prices for everyone.”
Almost one in 10 home mortgages is either delinquent or in foreclosure, and analysts estimate that at as many as six
million families could lose their homes over the next three years in the absence of government action.
The plan has three components. The first would help homeowners who are still current on their payments, but who are paying high interest rates and cannot
refinance because they do not have enough equity in their homes, a problem afflicting growing numbers of people as housing values tumble.
Flowing Credit Important for Good Economy
ABC News, March 24 2009, Z. Bryon Wolf, "Bank of America Gets Bailout, but Will
Consumers?"
But for Corey, that same credit that Treasury Secretary Tim Geithner and Fed Chairman Ben Bernanke want to get flowing is a big part of his own economic
problems. And nobody is talking about cleansing anything from his books.
Geithner and Bernanke told Congress Tuesday about the new Obama administration plan to "cleanse bank balance
sheets of troubled legacy loans and reduce the overhang of uncertainty associated with these assets," which should
make it possible for banks to float more credit into the economy.
Related
Geithner and Bernanke repeated, as they have many times this year, that propping up the banking industry and
insurance giant AIG getting credit flowing were imperative to guarding the U.S. economy from even deeper doldrums.
Corey received much credit from banks over the years. But when he fell on hard times, Bank of America, which has received $45 billion in taxpayer funds to keep
credit flowing, doubled his interest rate.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
16
SCFI 2009
Bailout File
PF
___ of ___
Housing Problem
Gov. Aid to Struggling Homeowners
The Wall Street Journal, February 19 2009, Laura Meckler, "Housing Bailout at $275 Billion"
PHOENIX -- President Barack Obama promised help for up to nine million struggling homeowners to refinance or modify their mortgages, in the most significant
move to aid homeowners since the housing crisis began.
The plan, which could cost as much as $275 billion, will enable as many as five million homeowners who have little
equity in their homes -- or even owe slightly more than their homes are worth -- to refinance loans through
government-controlled mortgage giants Fannie Mae and Freddie Mac. The administration set aside $200 billion in new backing for the
pair, which will play a central role in the rescue.
In addition, the government plans to spend $75 billion to encourage lenders to modify loan terms for people at risk of
foreclosure or already in foreclosure proceedings. Lenders and the government would jointly lower monthly payments to 31% of homeowners'
income. To encourage servicers, the plan includes incentives such as $1,000-a-year "pay for success" fees if a borrower stays current on the loan.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
17
SCFI 2009
Bailout File
PF
___ of ___
Consumer Confidence
Consumer Confidence key to economy 3/4
Lamothe 07 (Keisha, Consumer confidence drops near 2-year low, CNNMoney.com)
Consumer confidence is considered a key to Americans' willingness to make purchases, and therefore is a key economic
barometer, since consumer spending fuels nearly three-quarters of all U.S. economic activity.
This isn't quite a recession because wages and salaries are still going up, but people are still concerned about their
wealth," said Harris, who expects a very tepid increase in sales this holiday season.
Consumer confidence increase
Trimbath in 08 (The bailouts payments mount, the budget expands, the deficit widens, the national debt increases. How high is up?, Susanne
Trimbath 03/04/2009)
Pension funds of government employees may do a lot better.
Many 401(k) plans and pension funds of government employees have significant investments in financial companies.
Many people may have an easier time making mortgage payments, reducing their debts, and buying things.
Many businesses may have an easier time reducing their debts.
Many businesses may have an easier time obtaining loans and investments.
Consumer confidence may significantly increase which could encourage more people and businesses to spend
money.
Bailouts increase consumer sentiment
King 09 (Consumer Confidence Infects Investors,
May 26, 2009, Jim King, chief investment officer at National Penn Investors Trust Co.,)
Stocks surged Tuesday after the Conference Board said consumer sentiment rose in May to the highest level since
September. All the major stock indicators jumped more than 2 percent, including the Dow Jones industrial average,
which gained nearly 200 points.
The research group's Consumer Confidence Index vaulted to 54.9 from 40.8, soaring past the 42.3 that economists
surveyed by Thomson Reuters expected.
According to preliminary numbers, the Dow rose 196.17, or 2.37 percent, to 8,473.48. The Standard & Poor's 500
index rose 23.33, or 2.63 percent, to 910.33, and the technology-laden Nasdaq composite index rose 58.42, or 3.45
percent, to 1,750.43.
The Conference Board's report marked the second consecutive month of large gains in its measure of consumer
confidence. Its previous report on April 28 helped reverse a slide in the market that day, and investors appeared
heartened that the improving trend was continuing into May.
Stocks dependent on strong consumer spending jumped. Macy's Inc. rose 55 cents, or 4.9 percent, to $11.74, while
Best Buy Co. advanced $1.77, or 5 percent, to $36.95. Home builder KB Home rose 80 cents, or 5.5 percent, to
$15.44, and DR Horton Inc. rose 46 cents, or 5 percent, to $9.47.
Bailouts will increase consumer confidence
Hitt and Lueck in 08
(GREG HITT and SARAH LUECK, Passage Gets Boost From Tax Breaks; Back to the House, OCTOBER 1, 2008)
The House vote revealed deep unease among rank-and-file lawmakers. In an effort to broaden support, Senate
Majority Leader Mr. Reid and his Republican counterpart Sen. Mitch McConnell of Kentucky added the provision to
raise federal deposit insurance. Supporters contend the increase is needed to bolster consumer confidence in the
banking system. The increased coverage would
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
18
SCFI 2009
Bailout File
PF
___ of ___
Bailouts Save Global Economies
Bailouts are a detriment to the World Economy.
Burghart in 2009 (Sarah H, OVERCOMPENSATING MUCH? THE IMPACT OF PREEMPTION ON EMERGING FEDERAL AND STATE EFFORTS
TO LIMIT EXECUTIVE COMPENSATION, The Columbia Business Law Review
Uncertainty and a lack of confidence have clogged our basic financial plumbing as the channels of credit - the
arteries of [*10] the global financial system - have constricted. When banks cannot finance at reasonable
levels and cannot or are not willing to lend, everyone who depends on credit suffers. Rippling effects from a
worsening economy have trickled down from Wall Street into Main Street as the capital markets - the pipes
through which money flows to finance student loans, car loans, home loans, family needs, and small
businesses' payroll and inventory - fell victim to the credit freeze. These drastic events have reverberated far
beyond the trading floors of Wall Street and board rooms of corporate America.
Bailouts help global economy.
Hoefle, John. EIREconomics: Bailouts Won’t Save a Global Economy That’s Breaking Apart. December 19, 2009
In today's global economy, the sharp rise in worldwide banking stocks following the US government's takeover of troubled mortgage giants Freddie Mac and
Fannie Mae was to be expected.
With the US Treasury moving to shore up the US housing market, its action will inevitably also offer a knock-on boost
to mortgage provision around the world.
In time it should help to restore both confidence and available funds in the global credit market.
It may also help the US avoid a consumer-led recession that would drag down the global economy, starting with firms that export to the United States.
Direct investment
Overseas commercial banks - especially those in China and Japan - have directly invested billions of dollars in Freddie Mac and Fannie
Mae.
In addition, foreign banks have billions of dollars invested in US mortgage securities - effectively debt packages
resold by US banks - that are guaranteed by the two agencies.
It was the high level of bad debt in these securities that caused the global credit crunch, as banks around the world realised that they had made significant losses
on these investments.
As a result, the US government's bail out of Freddie Mac and Fannie Mae - and the hope that it can see normality
return to the American mortgage market - is an immediate and direct boost to a great many global lenders.
It will also inevitably greatly relieve global central banks, such as the Bank of England and the European Central
Bank, which since last year have had to help UK and European lenders affected by the global credit squeeze.
In the UK, one lender, Northern Rock, ultimately had to be nationalised.
'Positively guarantee'
Chinese banks have been among the first to welcome the US
government's move.
Flush with cash due to China's economic boom, China's commercial
lenders have in recent years become the biggest overseas investors in
Freddie Mac and Fannie Mae as part of their wider purchase of US
bonds.
The US government's action makes both this direct and indirect Freddie Mac and Fannie Mae debt far more secure.
China's three largest lenders - Industrial & Commercial Bank of China (ICBC), Construction Bank of China, and Bank of China - have $10.5bn (£5.9bn) directly
invested in Freddie Mac and Fannie Mae between them.
"We think this is good for Fannie and Freddie because the US government used to be invisibly guaranteeing them,
but now it is taking explicit action to positively guarantee them," said Bank of China spokesman Wang Zhaowen.
ICBC spokesman Xie Taifeng added: "It showed the positive attitude of the US government, we welcome it."
'Eases worries'
The US government's move has also been warmly welcomed in Japan, which after China is the second-biggest
direct overseas investor in Freddie Mac and Fannie Mae.
"I think it will have a positive impact on the world economy, as it eases worries over the US economy through more
stable financial markets in the US," said Japan's Finance Minister Bunmei Ibuki.
Japan's three largest banks - Mitsubishi UFJ Financial, Mizuho Financial and Sumitomo Mitsui Financial - had about $43.29bn in US mortgage debt securities,
including those controlled by Fannie Mae and Freddie May by the end of March.
Japan's government, like its Chinese counterpart, also directly owns US bonds, but both do not disclose any exact
figures.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
19
SCFI 2009
Bailout File
PF
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
___ of ___
20
SCFI 2009
Bailout File
PF
___ of ___
Global Links
Government Action has an impact on other nations
Michelle Le
South Africa
Roux,
March 19, 2009, “Political opportunity in a world connected by financial crisis” Business Day
The global financial crisis has reconfirmed our global interconnectedness. Entire nations are bankrupt
(Iceland) and the world is scrambling to find a comprehensive regulatory solution. At least we know this: the
global financial crisis reminds us that other nations' actions can affect us all. We certainly appreciate, as
never before, that our progress and success are interdependent. If we are intolerant of reckless economics
from our trading partners and neighbours, why do we tolerate dangerous governance? If we would pressure,
cajole and provide incentives to each other to ensure economic stability and progress, why not to ensure
stable and progressive governance?
Bailout improves Global Economy
BBC News,2008 (BBC News, September, 2008, US rescues giant mortgage lenders)
As a result, the US government's bail out of Freddie Mac and Fannie Mae - and the hope that it can see normality
return to the American mortgage market - is an immediate and direct boost to a great many global lenders.
It will also inevitably greatly relieve global central banks, such as the Bank of England and the European Central
Bank, which since last year have had to help UK and European lenders affected by the global credit squeeze.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
21
SCFI 2009
Bailout File
PF
___ of ___
Global Impacts
Global economic decline causes extinction
Bearden - 2000, Tom, PhD Nuclear Engineering, April 25, http://www.cheniere.org/correspondence/042500%20-%20modified.htm
Just prior to the terrible collapse of the World economy, with the crumbling well underway and rising, it is inevitable that some of the [wmd] weapons of mass destruction will be used by one or more nations on others.
An interesting result then---as all the old strategic studies used to show---is that everyone will fire everything as fast as possible against their perceived enemies. The reason is simple: When the mass destruction
there will erupt a spasmodic
unleashing of the long range missiles, nuclear arsenals, and biological warfare arsenals of the nations as they feel the
economic collapse, poverty, death, misery, etc. a bit earlier. The ensuing holocaust is certain to immediately draw in the major
nations also, and literally a hell on earth will result. In short, we will get the great Armageddon we have been fearing since the advent of the
weapons are unleashed at all, the only chance a nation has to survive is to desperately try to destroy its perceived enemies before they destroy it. So
nuclear genie. Right now, my personal estimate is that we have about a 99% chance of that scenario or some modified version of it, resulting.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
22
SCFI 2009
Bailout File
PF
___ of ___
AIG
AIG too Big to Fail
Justin Fox, Time Magazine, “Why the Government Wouldn’t Let AIG Fail,” Sept. 16, 2008
AIG was deemed too huge (its assets top $1 trillion), too global and too interconnected to fail. The best case for the bailout
seems to be that nobody has the faintest idea what the consequences of AIG's failure for financial markets would be, but the fear was
that it could lead to total chaos. The biggest fears had to do with the credit-default swaps, which AIG appears to have sold in large quantities to
practically every financial institution of significance on the planet. RBC Capital Markets analyst Hank Calenti estimated Tuesday that AIG's failure would cost its
swap counter parties $180 billion.
"Its collapse would be as close to an extinction-level event as the financial markets have seen since the Great
Depression," wrote money manager Michael Lewitt in Tuesday morning's New York Times. There’s also the fact that through its insurance policies AIG
touches far more regular Americans (and consumers around the world) than Lehman Brothers did. Plus, AIG's insurance businesses make so much money that
they could conceivably pay off the cost of the bailout within a few years.
An AIG Failure Would Hurt The Global Economy
The New York Times, March 2 2009, Andrew Ross Sorkin, "The Case for Saving A.I.G., by A.I.G."
Advertise on NYTimes.com
“Systemic risk” is a phrase often used to describe the domino effect of one business’s failure on the rest of the
economy. We saw the dangers of systemic risk in action when Lehman Brothers failed in September. And we’ve
heard a lot from Detroit automobile executives about the systemic risk they say the nation would face should General
Motors teeter.
But those failures look like summer thundershowers compared with the financial hurricane that a collapse of A.I.G. would represent, according to the document,
which was presented to Treasury Secretary Timothy F. Geithner and Lawrence H. Summers, head of the National Economic Council, in recent weeks.
One of the biggest worries, besides the considerable collateral damage to the banking system, is a risk that most people aren’t talking about, perhaps because
it’s too scary. This one is probably easier to understand than any kind of financial chicanery: the dangers lurking below A.I.G.’s seemingly stable, highly regulated
life insurance business. A.I.G.
has more than 81 million life insurance policies with a face value of $1.9 trillion globally.
If policyholders lost faith in A.I.G. and rushed to cash in their policies all at once, the entire life insurance industry
could falter.
“A ‘run on the bank’ in the life and retirement business would have sweeping impacts across the economy in the
U.S.,” according to the A.I.G. document. “In countries around the world with higher savings rates than in the U.S., the
failure of insurance companies would be a catastrophe.”
Even though A.I.G.’s insurance business is regulated by states, there probably would not be enough money to pay
out to consumers from what’s known as a guarantee fund. Other regulated insurance companies, which have been weakened by credit
losses, would be required to pay money into the fund to cover the shortfall, weakening them further and in some cases bankrupting them.
116, 000 workers at AIG
Hoovers, 2008
Public - NYSE: AIG
Main Headquarters
Fiscal Year-End December
2008 Sales (mil.) $11,104.0
2008 Employees 116,000
Company Type
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
23
SCFI 2009
Bailout File
PF
___ of ___
Inflation
Government should address inflation through interest rate cuts and added liquidity
Keating, 2008
Raymond J. Keating. Chief Economist for the Small Business & Entrepreneurship Council. "Stimulus act is better politics than economics." February 25, 2008.
Newsday. Retrieved March 9, 2008, from http://www.newsday.com/news/columnists/nyopkea5590496feb25,0,5119908.column.
Beyond the stimulus, many on both sides of the political aisle, along with various TV talking heads, also agree that the Federal
Reserve should be trying to juice up the economy through interest rate cuts and added liquidity. But the purpose of
monetary policy is to keep inflation low. It is not a magical means for manipulating economic growth. And since
consumer price inflation during the past three months has been running at a red-hot annualized rate of 6.8 percent,
the Fed needs to get refocused on getting inflation under control. Low inflation, of course, helps consumers and
investors.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
24
SCFI 2009
Bailout File
PF
___ of ___
Bailout Helps Competition
Help for the little guy
Desmond in 2009(Maurna 14, February 2009 Small Bailout For Small Business http://www.forbes.com/2009/02/14/small-businessstimulus-markets-equity-0213_talf_37.html
Pint-sized companies get some consideration in the congressional stimulus bill, but it
probably won't be easy to qualify.
Small businesses got a piece of the government bailout pie this week, but it doesn't appear too
sweet.
Tax breaks tucked into the $787.0 billion stimulus package passed Friday and the Treasury's efforts
to ease credit through the Small Business Administration hinge on how many firms can actually
capitalize on them.
At an estimated cost of $947.0 million over 10 years, businesses that make less than $15.0 million a year can carry
back 2008 losses to reduce taxes paid over the last five years, rather than the normal two years. Another provision,
with a $41.0 million price tag over the next decade, will let small businesses write off up to $125,000 in capital
investments per year.
Both provisions are nice if you can make use of them, but the first requires a small company to have been in
business for at least five years and to have had profitable years in the right time frame to be of use, and the other
only applies to enterprises that are making big capital investments.
Equally uncertain is the impact of the Treasury Department's announcement Tuesday that the government would buy
up loans backed by the Small Business Administration as a part of the Federal Reserve's Term Asset Backed
Securities Lending Facility is equally hard to determine.
"It's going to help, it can't be hurtful, but we just don't know much," said Bob Liton, a senior fellow at the Brookings
Institute of the SBA lending push. "We don't have enough details."
Since small businesses are responsible for more than half of jobs in the United States and are expected by many economists to the lead it out of the current
recession, helping this group is a priority frequently mentioned by President Barack Obama.
Help equal playing field
White in 2008(Deborah October 10
2009 Barack Obama's Small Business Emergency Rescue Plan
http://usliberals.about.com/od/theeconomyjobs/a/ObamaSmallBiz.htm
Expanding SBA Guarantees to Encourage Private Lending to Small Businesses Obama is calling for expanding the SBA’s key loan guarantee programs – 7(a) and 504 – by temporarily eliminating
fees for borrowers and lenders and increasing the guarantee rate on private loans. These steps will give lenders new
incentives to lend and help unlock credit for small firms.
Tax Incentives and Tax Cuts for Small Businesses -
Zero capital gains rate for small business - Obama will eliminate all capital gains taxes on investments made in small
and start-up businesses. Unlike McCain, who wants to give $200 billion in new tax cuts to the largest and most profitable businesses, Obama wants to
cut taxes for the small businesses that create jobs.
Temporary tax incentives to encourage investment in jobs -Obama
will give small businesses additional incentive to make
investments and start creating jobs again by providing temporary business tax incentives through 2009. This will be
accomplished, in part, by the extension of IRS code section 179 expense deduction to $250,000 which now expires
in December 2008.
New tax credits for employee health care costs - The Obama Small Business Health Tax Credit will provide a refundable credit of
up to 50% on premiums paid by small businesses on behalf of their employees and to small businesses with no
employees.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
25
SCFI 2009
Bailout File
PF
___ of ___
Bailout Helps Competition
Bailout includes small businesses
WEISMAN in 2009
(JONATHAN JULY 17 2009 Small Businesses Have a New Beef With White House
http://online.wsj.com/article/SB124779112611354883.html#mod=article-outset-box
The day the Treasury announced its $15 billion effort to inject liquidity into the small-business loan market, the American International Group retention-bonus flap
exploded. That knocked the small-business program out of the news and reminded Americans of the enormous taxpayer assistance going to the insurance titan.
The ensuing furor in Congress over executive pay then scared away banks that were to participate in the small-business loan effort. That program is supposed to
begin later this month.
White House officials also note that the February stimulus bill included $730 million to nearly double the budget of the
Small Business Administration. That allowed the SBA to offer a federal guarantee of 90% of bank loans to small
businesses, and to waive or greatly reduce fees paid by loan applicants. SBA loan volume has increased 45% since
the trough early this year.
Because the fee waiver was retroactive, a tire recycler in Troy, Ohio, was cut a $25,000 check for a previously
approved loan, said Jonathan Swain, an SBA spokesman.
Big businesses have unfair advantage
Ransom in 2008 (Diana, October 6 2008, Starting Up: Biz Owners See Red Over Bailout
http://www.smsmallbiz.com/capital/Starting_Up_Biz_Owners_See_Red_Over_Bailout.html)
IN GARY HARPST'S neighborhood of Findlay, Ohio, business owners are up in arms about
the government's $700 billion
rescue package. "They are very angry about the bailout," says Harpst, the chief executive of Six Disciplines, a smallbusiness consulting firm.
While the package is aimed at restoring confidence in the battered U.S. financial system and boosting banks' ability
to lend, business owners are bracing themselves for much less promising results, including higher taxes and slower
productivity growth. Some even believe the plan will give big businesses an unfair advantage over smaller
businesses. In fact, half of U.S. business owners think the government’s offer to buy toxic mortgages, securities and
related assets held by large financial firms is a bad idea, according to a recent survey from SurePayroll, an online
payroll service in Glenview, Ill.
Either way, "the government had to do something," says David S. Waddell, senior investment strategist at Waddell &
Associates in Memphis, Tenn. As credit standards continue to tighten, even business owners with sound financials
have had a hard time securing loans or maintaining existing ones. "If credit freezes or gets to the point that it is way
too expensive, we are not going to have any business originations, much less expansions," says Waddell. Such
conditions, he adds, also threaten business owners' ability to operate on a day-to-day basis.
While we need companies in key niches to be successful, we should consider whether propping up failing companies is better than allowing other companies to
arise or healthier companies to move in.
In the past, capitalist types loved to (mis)use Darwin’s theory to justify their misdeeds. Well, the eco-system metaphor can be trotted out once again. AIG and the
other dying companies are like failing species that occupy key niches. We can try to keep them alive; but we must be aware that doing so is very expensive and
serves to keep others from moving into those niches
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
26
SCFI 2009
Bailout File
PF
___ of ___
Small Businesses
Bailouts increase small bank businesses/credibility—Stabilizes economy
Associated Press,(WASHINGTON (AP) _ Bush confident bailout bill will stabilize economy)
President Bush is urging lawmakers to pass the compromise financial system bailout bill they fashioned in marathon
weekend bargaining, saying it is needed to "keep the crisis in our financial industry from spreading" across the
economy.
Bush made the statement at the White House Monday morning, seeking to assure Americans that approving his
administration's $700 billion rescue plan is the right thing to do.
He spoke amid continued nervousness in financial markets at home and overseas.
Bailout is stopping the spread of economic failure.
Associated Press, WASHINGTON (AP) _ Bush confident bailout bill will stabilize economy)
Key supporters of a Wall Street bailout package prodded lawmakers to approve the plan hours ahead of a difficult
House vote on Monday, with President Bush saying it is needed to 'keep the crisis in our financial system from
spreading throughout our economy.'
'Every member of Congress and every American should keep in mind that a vote for this bill is a vote to prevent
economic damage to you and your community,' said Bush, fully aware that congressional passage of the $700 billion
compromise legislation is far from assured.
Sen. Chris Dodd, D-Conn., said that failure to act would spread the contagion of frozen credit markets even further.
'This is not just about Wall Street,' said the Banking Committee chairman.
'With this strong and decisive legislation,' he said, 'we will help restart the flow of credit so American families can
meet their daily needs and American businesses can make purchases, ship goods and meet their payrolls.'
Small business= economically vital
Houston Chronicle July 18, 2009
Q: What role do small businesses play in the broader economy?
A:
Small businesses provide about half of all private-sector jobs. According to the U.S. Small Business
Administration, small firms generated 60 percent to 80 percent of net new jobs every year over the past decade.
Small businesses — defined as having fewer than 500 workers — made up 99.9 percent of the 27.2 million
businesses in the country in 2007, according to the SBA. Just 17,000 were large businesses.
The odds aren't great for small firms, however. The SBA says that while two-thirds of new businesses survive at least two years, only 31 percent survive at least
seven years.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
27
SCFI 2009
Bailout File
PF
___ of ___
Business Transparency
Banks get "A" for Transparency b/c of Bailout
Huffington Post, June 24 2009, Arthur Delaney, "Treasury Earns 'C' Average For Bailout Transparency; Previously Flunked”
The only criteria for which Treasury earned an "A" is in reporting on bank lending. A key improvement is that all
bailed-out banks are required to disclose lending data, and that information is posted on the Bank Lending Surveys page at
financialstability.gov. The fact that lending is down even though the TARP was supposed to get credit flowing does not count against the Treasury Department in
the transparency report card.
"The lending data is telling a bad story, but at least it's out there," said Tichon.
Feds Issue Transparency Report on Bailouts
Bailout Report, (Bailout.USlaw.com), June 12 2009
In an effort to increase transparency about the $1 Trillion (of $2.1 Trillion) it has added to it’s balance sheet since last
September, the Fed committed to issuing a balance sheet performance report on the second Wednesday of each
month.
In the first reports, the Fed indicated it netted $2.7 Billion in the first quarter, largely on gains from Term Auction
Facility (TAF) loans and on its Commercial Paper Funding Facility; earned $4.6 Billion from Treasury bonds which it
started purchashing in March; and lost $5.3 Billion on Bear Stearns and AIG collateral.
Transparency is Important
Economist.com, A-Z Index
Transparency
A buzz word for the idea that the more INFORMATION is disclosed about an economic activity the better. Many regulators, private lenders, politicians and
economists reckoned that the Asian economic crisis of the late 1990s would not have been so severe, or even have happened, had Asian governments, BANKS
and other companies made available more and better data about their financial condition. Likewise, the collapse of Enron provoked demands for greater
transparency, to help improve corporate governance in the United States and other industrialised countries. Some economists reckon that
transparency is one of the most effective methods of REGULATION. Rather than risk REGULATORY CAPTURE,
why not simply maximise disclosure and leave it to the market to decide whether what the information reveals is
acceptable?
More Treasury Transparency
Huffington Post, June 24 2009, Arthur Delaney, "Treasury Earns 'C' Average For Bailout Transparency; Previously Flunked"
Earlier this year the Treasury Department earned a big fat "F" from the U.S. Public Interest Research Group for the transparency of
the $700 billion financial industry bailout. The problem: All we knew about what was happening with taxpayer bailout money, U.S. PIRG said, was "that banks are
spending taxpayer money on Super Bowl parties and Vegas junkets, lobbying for more bailout funds and for mergers and acquisitions, instead of making loans."
In its first updated Bailout Report Card, U.S. PIRG gives Treasury much higher marks: mostly Cs. The improvement is
thanks largely to www.financialstability.gov, the website Treasury unveiled in March to lift the curtain on the Troubled Asset Relief Program.
"We're coming from an abysmal state: There was no information available about the participants, no information
about why they were receiving the money," said U.S. PIRG's Nicole Tichon, author of the report card, in an interview with the Huffington Post.
"The fact that there's lip service being paid to taxpayer protection is a great step.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
28
SCFI 2009
Bailout File
PF
___ of ___
Taxpayers and the bailout
Taxpayers should rescue the financial institutions.
Michael Casey, A twin-track solution to rebuild confidence after subprime crisis, September 1, 2008 Monday
There have been substantial bailouts to date, including the Fed's lending to distressed institutions under several different programs, the extension of loan limits
by the Federal Housing Agency, and the extension of mortgage ceilings by government-sponsored Fannie Mae and Freddy Mac
the author regards the interest-rate cuts by the Fed as a form of bailout which may cost the average citizen and
tax-payer via higher inflation in goods and services in the future. He is in favor of ramping up these bailouts, as
well as tax rebates, because he regards it as vital to maintain confidence in the financial institutions. According to
him, the costs of the bailouts should be borne "by the broad public . . . and not dumped into the laps of a small set
of investors". In other words taxpayers should rescue the financial institutions.
Tax payers will be reimbursed, post bailout
WILLS 08 | (Christopher, September 23, 2008 05:51 PM EST ,
CLEARWATER, Fla. — Democrat
Barack Obama said Tuesday any plan to rescue Wall Street from its financial woes must
ensure that taxpayers are reimbursed and corporate executives are not further enriched for mismanagement.The
Democratic presidential candidate challenged President Bush to cooperate on a rescue plan embodying those
principles and drop what Obama characterized as Bush's "my way or the highway" attitude toward the proposed $700
billion bailout. "The president's stubborn inflexibility is both unacceptable and disturbingly familiar," he said
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
29
SCFI 2009
Bailout File
PF
___ of ___
Liquidity Good
Holding Toxic Assets Make it Difficult to Make Loans
Washington Post, July 9 2009, David Cho and Binyamin Appelbaum, "Treasury Dials Back Plan to Aid Banks"
When Treasury Secretary Timothy F. Geithner unveiled the department's troubled asset program four months ago, he said the Treasury could contribute up to
$100 billion to two initiatives for buying up to $500 billion in toxic assets. The other initiative has been delayed indefinitely.
Banks hold vast quantities of toxic assets -- distressed residential and commercial mortgages and securities derived
from those mortgages -- that they are reluctant to sell because investors are demanding fire-sale prices. But holding
these toxic assets limits the ability of banks to make new loans.
The Treasury program detailed yesterday offers investors billions of dollars in cheap financing to buy toxic securities, which should allow these investors to offer
banks higher prices for some toxic assets.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
30
SCFI 2009
Bailout File
PF
___ of ___
A2: deficit hurts Dollar Value
The budget deficit is not connected with the decreasing dollar
Baker in 2007
Dean Baker. [Co-director of the Center for Economic and Policy Research]. "The High Dollar: The Real Cause of the Weak Dollar." The American Prospect.
October 2, 2007.
http://www.prospect.org/csnc/blogs/beat_the_press_archive?month=10&year=2007&
base_name=the_high_dollar_the_real_cause.
The NYT is upset again that the dollar is falling and once again it is blaming President Bush's budget deficits. This
turns economics on its head. The story on budget deficits is that they lead to higher interest rates in the United
States. This causes the dollar to be worth more than would otherwise be the case. In other words, the NYT's complaints just don't
make any sense. They can say lots of bad things about Bush's tax cuts and his war-related spending, but it just doesn't make any sense to
blame them for the decline of the dollar. The dollar is declining for a simple reason -- it was over-valued. The United
States had a trade deficit that exceeded 6 percent of GDP at its peak. This was not sustainable, as just about all
economists recognized. There are two ways to reduce a trade deficit: a recession or a fall in the dollar. Unless the
NYT prefers a prolonged recession, it should applaud the fall in the dollar as part of a necessary adjustment process
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
31
SCFI 2009
Bailout File
PF
___ of ___
NEG
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
32
SCFI 2009
Bailout File
PF
___ of ___
History Proves Bailouts Don’t Work
After Bank Bailout of 1874 The Bank Still Failed!!!
Sullivan 08 (Laura, A Brief History of Government Bailout,)
The first major bank to fail in the US since the FDIC was established was United States National
Savings Bank, worth $1.5 billion. Shortly thereafter, on October 8, 1974, the Franklin National
Bank in New York also failed. At the time, it was the largest bank failure in US history, and
Michele Sindona, the mafia-connected member with a controlling interest in the bank, eventually
went to prison and died of cyanide poisoning. The Feds assumed the debts in those cases, and
proceeded with a bailout that was simply unthinkable at the time, the equivalent of $7.7 billion
by current standards.
Penn State Railroad Bailout of 1970 did not target the real problem therefore it was
not fixed and it currently costs Taxpayers $25,000 an hour.
Plummer 08 (Joe, Dishonest Money Financing the road to ruin, Chief Research Officer of the ARF)
But why go the bankruptcy route when the Federal Reserve System had been created for precisely
this kind of situation? …En masse, they descended on Congress; Penn Central’s executives, bankers,
union representatives, even the Navy Department, all speaking of the dire threat to the “public
interest” - even national security - should Penn Central be allowed to go under. Congress patriotically
responded by ordering an immediate pay raise of 13 ½ per cent for all union employees, adding yet
another financial burden to the already failed company. And with the “Emergency Rail Services Act”
they authorized $125 million in federal loan guarantees.
Of course neither of these moves solved the underlying “root cause” of Penn’s financial problems
and the railroad was “nationalized” (“-a euphemism for becoming a black hole into which tax dollars
disappear”) in 1971. By 1973 it had been split into two divisions: Amtrak and Conrail. Amtrak
handled passenger services and Conrail handled freight.
By 1998, Congress had dumped $21 Billion into Amtrak and its liabilities still exceeded its assets by
roughly $14 billion. In 2002, it was burning up roughly $25,000 per hour (24 hours a day, 7 days a
week) of taxpayer’s money.
Lockheed actually never paid back the Loan from the U.S. Gov.
Plummer 08 (Joe, Dishonest Money Financing the road to ruin, Chief Research Officer of the ARF)
“…every bit of the money used to pay back the loans came from defense contracts which were
awarded by the same government which was guaranteeing those loans. …Taxpayers were
doomed to pay the bill either way.”
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
33
SCFI 2009
Bailout File
PF
___ of ___
History Proves Bailouts Don’t Work
Lockheed bailout of 1970 Proves that the U.S. Government pass the Bailouts to serve
their own needs not those of Americans
Plummer 08 (Joe, Dishonest Money Financing the road to ruin, Chief Research Officer of the ARF)
Also in 1970, the nation’s largest defense contractor, Lockheed Corporation, found itself mired in
nearly half a billion dollars of debt. To save the giant from bankruptcy, and of course save the banks
from losing a huge asset and stream of income, a group of concerned interests descended on
Congress. The banks, Lockheed management, stockholders and labor unions all explained how jobs
would be lost, sub-contractors would be put out of business and national security jeopardized if
Lockheed was unable to borrow more money and fast. (…Money that no bank wanted to loan absent
a government guarantee.)
The government responded with a bailout plan of $250 million in loan guarantees; increasing the
company’s debt by over 50%. But wouldn’t this insane increase in debt put the company at even
greater risk of insolvency? Under normal circumstances it would, but not in this case. Why? Because
now the government (on the hook for $250 million) had all the incentive in the world to steer
lucrative defense contracts to Lockheed so it could pay its bills. Again, rewarding failure and
punishing success. (Those contractors that operated their business more efficiently didn’t have the
added leverage of “If we fail, you have to come up with hundreds of millions of dollars.” It would be
foolish to think that didn’t come into play when deciding who was awarded a contract and who
wasn’t.)
Never worked in history, dreadful abyss
Milner 08, (Brian, U.S. bailout welfare for the rich; outspoken investor jim rogers says
the rescue plan will make things worse, The globe and mail)Director of Training at Industrial
Training Company (ITC) Environmental and Geoscience Manager at Schnabel Engineering
The proposed U.S. financial bailout scheme is a dreadful mistake that could plunge the
country into an economic abyss for years and will only reward the people who brought
the financial system to the brink of disaster, says famed investor Jim Rogers.
"It's the wrong approach," Mr. Rogers said yesterday while huffing through a lengthy
morning workout on an exercise bike in a downtown Toronto hotel.
"This has never worked in history. Other approaches have worked, which they're
ignoring. Part of the problem is these guys don't know any history.
"All they know is, Goldman Sachs is on the phone saying help, help, help
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
34
SCFI 2009
Bailout File
PF
___ of ___
Government Bailouts Bad
Bailout costs too much
Kathleen Pender Nov. 26, 2008. “Government bailout hits 8.5 trillion”
The federal government committed an additional $800 billion to two new loan programs on Tuesday, bringing its
cumulative commitment to financial rescue initiatives to a staggering $8.5 trillion, according to Bloomberg News.
That sum represents almost 60 percent of the nation's estimated gross domestic product.
Given the unprecedented size and complexity of these programs and the fact that many have never been tried before, it's impossible to
predict how much they will cost taxpayers. The final cost won't be known for many years.
Bailout money may be lost
St. Petersburg Times, December 7, 2008, “The most expensive things ever”
We've all heard the $700-billion price of the bailout. But that refers only to a piece called TARP (the Troubled Asset
Relief Program). Add other bailout costs and commitments, and the potential taxpayer exposure grows more zeroes,
reaching $8.5-trillion, calculates Barry L. Ritholtz, who writes The Big Picture. Already, more than $3-trillion has been tapped. But
the government will presumably get much of its money back eventually - "a good chunk of the quality stuff will return 100 percent
on the Fed side," he said by phone last week to Perspective editor Jim Verhulst. But he cautions that defaults
could total $500-billion that would never be seen again.
of even 10 percent
"The president is almost surely too optimistic that the government will recoup most of the $700 billion. Banks will have an incentive to offload their worst paper on
the government. The government, in turn, is not a very good asset manager," said William A. Niskanen, a senior economist at the Cato Institute.
Richard Sylla, an economics professor at New York University's Stern School of Business, said the success depends on the price at which the government buys
the assets and how long it holds them.
"If the program gets the financial system back to normal operation and the economy starts growing at 3 to 5 percent
again, the government will also benefit from higher income tax collections, so there are indirect effects of the program
as well as the possible direct gain from investing in the assets," he said.
No way to prove that the U.S. will make back money given in bailout
Michael A. Hiltzik,
Taxpayers?”
Los
Angeles Times Staff Writer, September 28, 2008 “Could the Bailout Turn a Profit for
"It's entirely within the realm of possibility that we'll make money on this deal ," says
J. Bradford
DeLong, professor of economics at UC Berkeley.
DeLong observes that several government bailouts of the past have ended up in the black, including the
1994 rescue of the Mexican peso. The U.S. government eventually recorded a $500-million profit on its share of
Mexico's $50-billion international loan package.
the government's takeover of stricken insurance company American
International Group may have already produced a paper profit, and could produce more gains as AIG's
asset portfolio is sold off or recovers its value.
Of more immediate relevance,
"Very senior people in charge of asset portfolios on Wall Street have said they are envious of the terms
the government imposed on AIG," DeLong says. "They think the Fed's going to make a fortune ." He
conjectures that the $700-billion bank bailout could yield somewhere between a $100-billion loss and a
$100-billion gain.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
35
SCFI 2009
Bailout File
PF
___ of ___
Government Bailouts Bad
Failure must happen
Paul, 11-24-2008 (Ron, The Bailout Surge, www.house.gov)
"In
bailing out failing companies, they are confiscating money from productive members of the economy and giving it
to failing ones. By sustaining companies with obsolete or unsustainable business models, the government prevents their resources from being liquidated
and made available to other companies that can put them to better, more productive use. An essential element of a healthy free market, is
that both success and failure must be permitted to happen when they are earned. But instead with a bailout, the
rewards are reversed – the proceeds from successful entities are given to failing ones. How this is supposed to be good for our
economy is beyond me.... It won’t work. It can’t work... It is obvious to most Americans that we need to reject corporate cronyism,
and allow the natural regulations and incentives of the free market to pick the winners and losers in our economy, not
the whims of bureaucrats and politicians."
Government Bailouts are ineffective and allow the Big Businesses to take America
Hostage
Gay and Ghodsi 09 (Dr. Sebastion, Nadia Nasser, Stimulus: A Good Strategy?, Dr. Sebastion Gay is a private consultant and an Economics lecturer
at the University of Chicago. )
There are several long-term risks associated with adopting a government-driven strategy to address the emergencies
in strategic industries. Most concerning is the incentive structure that is established by such an approach; those
large companies that struggle in a weak economy will attempt to hold the country hostage by claiming their
necessity. As the responsibility for business mistakes shifts from big companies to the government, the companies’
management teams will be more willing to take greater risks because they will not bear the costs if they fail. It is
also important to point out that the term “strategic industries” is a judgment-based term, where
“strategic” is based on whether the industry is a significant player in the economy. If government takes a greater role
in those industries it considers “strategic” it is, in essence, selecting the winners and losers of the economy and
denying the market its role in making that choice. Greater government involvement in strategic industries can also
discourage innovation and entrepreneurship, encourage more mergers and acquisitions, and dissuade private
investment, particularly in small companies.
Bailouts Create long term risks and will destroy our position of power globally
Gay and Ghodsi 09 (Dr. Sebastion, Nadia Nasser, Stimulus: A Good Strategy?, Dr. Sebastion Gay
is a private consultant and an Economics lecturer at the University of Chicago. )
Large-scale financial support by the government also bears similar long-term risks; however, the
increase in financial support brings an additional factor to consider. For now, the government is
supporting its increased spending by printing money (a short-term solution) and borrowing from
growing nations like China. International relations may be seriously impacted by the shifting
dynamic between the United States as a debtor and other international players as its lenders.
Bailouts Create long term risks and will destroy our position of power globally
Gay and Ghodsi 09 (Dr. Sebastion, Nadia Nasser, Stimulus: A Good Strategy?, Dr. Sebastion Gay is a private consultant and an Economics lecturer
at the University of Chicago. )
Large-scale financial support by the government also bears similar long-term risks; however, the increase in financial
support brings an additional factor to consider. For now, the government is supporting its increased spending by
printing money (a short-term solution) and borrowing from growing nations like China. International relations may be
seriously impacted by the shifting dynamic between the United States as a debtor and other international players as
its lenders.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
36
SCFI 2009
Bailout File
PF
___ of ___
Government Bailouts Bad
Congress passes a bill that will Destroy the Economy
Watson, 2008 (Paul Joseph Watson, Monday, September 29,2008, Prison Planet, Ron Paul Quote)
As a vote nears on the $700 billion dollar plus bailout bill, Congressman Ron Paul took to the
House floor this morning to warn that the passage of the legislation will destroy the dollar and
the world economy.
Stating that the passage of the bailout bill would only make the problem worse, the Congressman from Texas said, “This has
nothing to do with free market capitalism, this has to do with a managed economy, an inflationary system, corporatism, a special
interest system, and this has nothing to do with the failure of our free markets and capitalism.”Paul blamed the current crisis on a
Federal Reserve power monopoly over the money and credit system, the ceaseless borrowing and printing of money, and dismissed
the bill as nothing but more of the same
“Long term this is disastrous,” continued the Congressman, “we’ve already pumped in $700
billion dollars, here’s another $700 billion dollars—this is going to destroy the dollar—that’s
what you should be concerned about—if you destroy the dollar you’re going to destroy a
worldwide economy and that’s what we’re on the verge of doing.”
Paul said that the long term implications of the bailout would be a lot more serious than the
problems currently being experienced by Wall Street.
Government Bailouts are ineffective and allow the Big Businesses to take America
Hostage
Gay and Ghodsi 09 (Dr. Sebastion, Nadia Nasser, Stimulus: A Good Strategy?, Dr. Sebastion Gay
is a private consultant and an Economics lecturer at the University of Chicago. )
There are several long-term risks associated with adopting a government-driven strategy to
address the emergencies in strategic industries. Most concerning is the incentive structure that is
established by such an approach; those large companies that struggle in a weak economy will
attempt to hold the country hostage by claiming their necessity. As the responsibility for
business mistakes shifts from big companies to the government, the companies’ management
teams will be more willing to take greater risks because they will not bear the costs if they fail.
It is also important to point out that the term “strategic industries” is a judgment-based term,
where “strategic” is based on whether the industry is a significant player in the economy. If
government takes a greater role in those industries it considers “strategic” it is, in essence,
selecting the winners and losers of the economy and denying the market its role in making that
choice. Greater government involvement in strategic industries can also discourage innovation
and entrepreneurship, encourage more mergers and acquisitions, and dissuade private
investment, particularly in small companies.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
37
SCFI 2009
Bailout File
PF
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
___ of ___
38
SCFI 2009
Bailout File
PF
___ of ___
Government Bailouts Bad
American Bailout Will Disturb American Life Style
Mitchell 08 (Daniel, Why the Bailout is bad for America, Daniel Mitchell is a senior fellow at the Cato Institute)
• The bailout is bad for the economy. The unfortunate truth is that bad government policy has resulted in excess investment in the housing sector, and the
inevitable reallocation of labor and capital is going to cause some economic dislocation. The good news, though, is that this process - if not hindered - will create
a stronger and more vibrant economy. A bailout, however, will discourage this process and reduce economic efficiency. This may
not seem important in the short run, since modest changes in the rate of economic growth are difficult to perceive. But in the long run,
because of compounding, even small changes in the rate of growth can have a significant impact on living standards.
Small differences in annual growth rates are why disposable income in the United States is substantially higher than disposable income in nations that practice
economic interventionism, such as France, Germany, and Japan.
Bailouts cause debt
Kevin Bailey Herald Sun (Australia), February 23, 2009 Monday, BUSINESS; Pg. 29, 478 words
Government bailouts and stimulus packages are being promoted as a cure for
almost everything -- but they are funded by more government debt and the money
must come from somewhere. In other words, this added debt soaks up savings that would otherwise
go to private investment. In the end bailouts and stimulus plans do not add anything, they
simply move resources from one side to the other. The reason we find ourselves with the problems we have
today is because we have been spending money we haven't yet earned. We did this to pay for our current
lifestyle -- borrowing money that must be repaid in the future. The stimulus solution appears to be
the government giving us more money we haven't yet earned by borrowing it from
the rest of the world. If our economy worsens, we will be even less able to weather
the storm because we will be burdened by billions of dollars of extra debt.
Bailouts leave debt with our children
Mohau Pheko Sunday Times (South Africa), March 16, 2008, OPINION & EDITORIAL; Pg. 21, 871 words,
We have not yet learnt the art of teaching our kids to build a social relationship with money. Instead,
we are
leaving them a legacy of debt. Living in debt has become a comfortable, friendly
blanket, hiding the cold reality that many of our lives are completely out of
control. We just keep sinking into debt, but millions out there can't bring
themselves to really think about it. It's so much easier to keep doing the same things we always do.
In fact, we are living high on the hog to the extent that we are inadvertently
stealing the future of our children.
Bailout Hurts the States
Firestone, 1995 (David Firestone, Thursday, May 18, 1995, New York Times,
http://www.nytimes.com/1995/05/18/nyregion/this-time-new-york-city-is-all-alone.html)
Felix G. Rohatyn, who as chairman of the Municipal Assistance Corporation, was a key architect of the city's bailout
in the 1970's, recalled that the state was flush with cash then and willing to give some to the city in exchange for firm
cost controls. Now, however, the state's financial condition may be even worse than the city's, he noted, and the sour
political atmosphere that pervades the capital makes compromise vastly more difficult. The city's budget gap is about $3.1 billion;
the state's is as much as $5 billion.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
39
SCFI 2009
Bailout File
PF
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
___ of ___
40
SCFI 2009
Bailout File
PF
___ of ___
Government Bailouts Bad
Bailouts would be terrible for the US economy
Slaughter in 2008 (Matthew,
An Auto Bailout Would Be Terrible for Free Trade, Wall Street Journal)
Congress is now considering a federal bailout for America's Big Three automobile companies. Many want to grant them at
least $25 billion from the $700 billion Troubled Asset Relief Program on top of $25 billion in low-interest loans approved earlier this year.
But these figures represent only a fraction of what the total cost of the bailout could be. In a global economy, a federal bailout
of the
automotive industry could cost Americans jobs as well as foreign markets to trade in. There are at least three important ways an
industry bailout could damage America's engagement in the global economy and hurt U.S. companies, workers and taxpayers.
The first global cost of a bailout could be less foreign direct investment (FDI) coming into the United States. On Sunday,
President-elect Barack Obama asked, "What does a sustainable U.S. auto industry look like?"
At the head of the line of sustainable auto companies stands Toyota. In its 2008 fiscal year, it earned a remarkable $17.1 billion world-wide and assembled 1.66
million motor vehicles in North America. Toyota has production facilities in seven states and R&D facilities in three others. Honda, another sustainable
auto company, operates in five states and earned $6 billion in net income in 2008. In contrast, General Motors lost
$38.7 billion last year.
From 2003-2005 the U.S. received 16% of global FDI. That's down from 31.5% it received in 1988-1990. . The
answer is an obvious yes. Ironically, proponents of a bailout say saving Detroit is necessary to
protect the U.S. manufacturing base. But too many such bailouts could erode the number of manufacturers
willing to invest here. The bailout's second global cost could hit U.S.-headquartered companies that run multinational
businesses. In total, these companies employ more than 22 million Americans and account for a
remarkable 75.8% of all private-sector R&D in the U.S. Their success depends on their ability to access
foreign customers. They do this two ways. They export goods from their U.S. parent companies. And they sell goods
locally through foreign affiliates. These foreign affiliates are built by direct investment of American
companies in other countries. In 2006, U.S. parent companies exported $495.1 billion to foreign
markets. That same year their majority-owned affiliates earned over $4.1 trillion in sales -- $8.33
for every $1 in exports.
This access to foreign markets has been good for America. But it won't necessarily continue. The policy environment
abroad is growing more protectionist. Multilateral efforts to liberalize trade in the Doha Development Round died in July with no prospects for
restarting. Even more worrisome are rising FDI barriers. In 2005 and 2006, the United Nations reported a record number
of new FDI restrictions around the world -- even in major recipient countries such as China, Germany and Japan.
No. A bailout will likely entrench and expand protectionist practices across the globe, and thus erode the foreign
sales and competitiveness of U.S. multinationals. And that would reduce these companies' U.S. employment, R&D
and related activities. That would be bad for America
US securities are becoming increasingly unattractive as investments which may have
negative ramifications on the economy
Yanina Manolova, 2009 (USA TODAY, Rising national debt may be the next economic crisis)
As the U.S. spends trillions to stabilize the recession-wracked economy, helping to force down
the value of the dollar, the securities become less attractive as investments. Some major foreign
lenders are already paring back on their purchases of U.S. bonds and other securities.
And if major holders of U.S. debt were to flee, it would send shock waves through the global
economy — and sharply force up U.S. interest rates
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
41
SCFI 2009
Bailout File
PF
___ of ___
Politicians Are Not Addressing The Real Problem
Politicians are bailing out the wrong people. These people already have enough
money and they don’t need any more
Black in July 14, 2009 (William K, Goldman’s Gain, America’s Risk, associate professor of economics and law at the University of
Missouri, Kansas City, is a former financial regulator)
It’s difficult to decide which is more insane: the efforts of the Bush and Obama administrations to recreate the failed
financial markets, e.g., collateralized debt obligations that produced the worst global financial crisis in three
generations, or continuing to make obscenely wealthy the financial idiot-savants that caused the crisis.
Goldman Sachs is the poster child for both forms of insanity. The news that Goldman has purportedly earned
astonishingly large profits in the latest quarter and plans to pay many billions of dollars in “bonuses” to people who
are already in the top 1 percent of the wealth distribution raises issues in two categories: performance and pay.
Government does Not Deal With Underlying Problem
Nabloid, Robert. November 16, 2008 Bailouts Don't Solve Underlying Problem
There should be a wider debate on economic principles and what the role of government is. We’ve become confused about the role of
government in the economy - and the role of individuals and corporations. This is a big debate that isn’t taking place at the forefront of the media.
Instead, the media is too busy talking about what the government can do to fix these economic problems - but they usually focus on “fixing” the
An economy financed on debt is unsustainable and only masks the true
problems of competitiveness and sustainability. We should not be relying on consumers’ spending of debt dollars in
order to be economically prosperous.
symptoms, instead of focusing on the real problem;
No amount of government bailouts, stimulus packages, or increased taxation to allow more government “spread the
wealth” programs, will ultimately deal with the underlying economic issues. They only mask the issues and lead to
greater problems in the long haul by delaying the economy from answering them. We need to become competitive
again through innovation, invention, progressing technology forward, increasing efficiencies, etc, etc, if we are to
solve our economic problems.
The Real Problem is that US dollar value
Ahmadinejad, 2008 (Ahmadinejad to OPEC: Dump weak dollar, Tue, 17 Jun 2008 11:17:45 GMT)
Iran's President Mahmoud Ahmadinejad
Iran urges the OPEC member states again to convert their cash reserves into a basket of currencies rather than the tumbling US dollar.
Speaking at a ceremony to open the 29th ministerial meeting of the OPEC Fund for International Development (OFID), Iran's President Mahmoud Ahmadinejad
repeated his proposal made about six months ago in a rare summit of the Organization of Petroleum Exporting Countries's heads of states.
"The fall in the value of US dollar is one of the pressing problems of the world today," warned the Iranian president at the
conference in Isfahan on Tuesday.
He further expressed concern over the adverse effect of the dollar depreciation on the international community, especially energy exporting countries through
increasing the price of commodities like wheat, rice and oilseeds.
Ahmadinejad said he warned six months ago in the summit conference in Riyadh that there were many indications pointing to continued fall in the value of the
greenback.
"And we see that this continues to happen and the resources and wealth of OPEC member countries have been hugely damaged.
"I
again repeat my previous proposal; we should have a basket of different international hard currencies as the basis
or the member countries should come up and produce a new hard currency for petroleum contracts," he stressed.
"They get our oil and give us a worthless piece of paper," Ahmadinejad said earlier after the close of the summit in the Saudi capital of Riyadh.
The comments by the Iranian president gained backing from Venezuelan President Hugo Chavez as he said at the same event, "The
dollar has to end."
empire of the
On the soaring oil prices, the Iranian president said, "At a time when the growth of consumption is lower than the growth of production and the market is full of oil,
prices are rising and this trend is completely fake and imposed."
"As you know the decrease in the dollar's value and the increase in energy prices are two sides of the same coin
which are being introduced as factors behind the recent instability," Ahmadinejad added.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
42
SCFI 2009
Bailout File
PF
___ of ___
International Bailouts Don’t Work
International Bailouts by the United States Federal Government Directly Funds
Corrupt Leaders
Paul in 2009 (Ron, International Bailout Brings Us Closer to Economic Collapse)
From their spending habits, an economic collapse seems to be the goal of Congress and this
administration. Washington spends with impunity domestically, bailing out and nationalizing
everything they can get their hands on, and the foreign aid and IMF funding in this bill can
rightly be called an international bailout!
As Americans struggle through the worst economic downturn since the Great Depression, this
emergency supplemental appropriations bill sends $660 million to Gaza, $555 million to Israel,
$310 million to Egypt, $300 million to Jordan, and $420 million to Mexico. Some $889 million
will be sent to the United Nations for so-called “peacekeeping” missions. Almost one billion
dollars will be sent overseas to address the global financial crisis outside our borders. Nearly $8
billion will be spent to address a “potential pandemic flu” which could result in mandatory
vaccinations for no discernable reason other than to enrich the pharmaceutical companies that
make the vaccine.
Perhaps most outrageous is the $108 billion loan guarantee to the International Monetary Fund.
These new loan guarantees will allow that destructive organization to continue spending taxpayer
money to prop up corrupt leaders and promote harmful economic policies overseas.
International Bailout Undermines National Security
Paul in 2009 (Ron, International Bailout Brings Us Closer to Economic Collapse)
We are buying nothing but evil and global oppression by sending your tax dollars to the IMF.
Not to mention there is no Constitutional authority to do so. Our continued presence in Iraq and
Afghanistan does not make us safer at home, but in fact undermines our national security. I
vehemently opposed this Supplemental Appropriations Bill and was dismayed to see it pass so
easily.
Refusal to bail killed US and Foreign economies
FX September 2008 (Rational, Markets down over failed bailout plan, property wire; premier
global property news service)
The U.S. congress sent shockwaves through the global markets after rejecting the proposed
bailout plan.
This has sent stocks crashing with the Dow Jones done a record 777 points (-6.98%) and NASDAQ down 199 points
(-9.14%). The Fed responded with increasing swap lines between central banks to $620 billion. Crude oil closed at $96.37 a
barrel.
After the nationalisation of Bradford and Bingley, the GBP fell to a record 15 year low against the USD closing at 1.8080 after seeing a high of
1.8340. Speculation suggests seeing a rise in the immediate future but then falling to 1.65 in 12-24 months.
The Euro suffered a drop after Fortis was bailed out by Benelux central banks, although it did have a short boost after the US bailout was rejected and
large amounts of US repatriation was seen. Overall the EURO traded against the dollar with a high of 1.4635, low of 1.4303 and closed on 1.4400. Inflation in
the Eurozone has dropped 0.2% to 3.6% in September compared to 3.8% in August.
Due out today from the US, the Chicago PMI is seen at 53.5, down from 57.9, with CB
consumer confidence due to come in at 54.6 from its previous 56.9.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
43
SCFI 2009
Bailout File
PF
___ of ___
Auto
The Big Three are a disgrace, but they still need our help.
Gross, 2008 (By Daniel Gross | Newsweek Web Exclusive, Nov 13, 2008, In Defense of Detroit, The Big Three are a disgrace, but they still need our
help
Another difference between this and other large bankruptcy cases is the potential collateral damage. New York will survive the failure of Lehman Brothers and
Bear Stearns, although it will feel the pain of lower tax revenues and retail sales. When a national retailer goes down, it hurts landlords all over the place, but
rarely causes an entire mall to become vacant. But already-depressed Michigan, and several adjacent states, will have a much more difficult time dealing with the
collapse of an automaker. This doomsday economic scenario, released by the Center for Automotive Research, says that up to 3 million
jobs nationwide could be lost if the Big Three stop all production next year. That might not be in the
offing. But the impact on Michigan's cities, towns, state government, housing values, and public institutions (including resources that the state has built that are
national resources, such as its public university system) would suffer grievous harm.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
44
SCFI 2009
Bailout File
PF
___ of ___
Deficit Bad
Deficit Spending Kills the Economy.
Patrice Hill, Washington Times, 4-23-2007
Congress will have to steer carefully to avoid a shock to the economy as it strives to
balance the budget by allowing tax cuts to expire in the next few years, economists say. The biggest danger is the alternative minimum tax (AMT),
which this year is scheduled to cut deeply into the pocketbooks of as many as 23 million upper-middle-income taxpayers unless Congress extends tax relief. President Bush's budget and
the House and Senate spending plans rely on the expiration of AMT relief to achieve balance in the next five years. Mr. Bush's budget provides a one-year fix of the tax, costing $36
billion this year, while providing extensions of his own tax cuts that expire in 2011. House and Senate leaders put a priority on maintaining AMT relief for the middle class, but their
budgets require offsets under pay-as-you-go rules reinstated this year. Economists warn that ending tax cuts abruptly can damage the economy, which has been weakened by the housing
downturn and has slowed with the end of business investment deductions that Congress provided at the end of 2005. Economists support lawmakers' goal of balancing the budget as baby
Addressing the
country's fiscal problems will take persistence and a willingness to make difficult choices," he has told Congress.
Republicans who favor low tax rates must recognize the need to increase spending cuts, he said, while Democrats who favor higher spending must realize
boomers prepare to retire. Federal Reserve Chairman Ben S. Bernanke emphasizes that this will require major trade-offs between taxes and spending. "
that taxes must be raised and that the "adverse economic incentives associated with higher tax rates" could slow growth. Continued "The potential for marginal tax rate cuts to increase the
labor supply is much smaller now than 20 years ago," said economist Francine Blau, one of the study's authors. Despite mixed evidence on the effects of the Bush tax, economists say,
Congress should not allow them to expire all at once because the effect could be a $200 billion tax increase. "Such a huge increase in tax revenue would have an enormous contractionary
effect on the economy, likely precipitating a recession in 2011 or 2012," said Roger M. Kubarych, economist with Unicredit Bank. He also foresees problems with extending the tax cuts
and offsetting them with 40 percent cuts in discretionary spending outside the Pentagon, as Mr. Bush proposes. He suggests a middle ground that accommodates the need for both
Wyss, an
economist with Standard & Poor's Corp., warns against deficit financing. Extending the tax cuts and
maintaining spending growth at the same rate as Congress has done since 2000 would result in "deficits of a size that
present a threat to long-run economic growth," he said. Joseph Quinlan, chief market strategist with
Bank of America Corp., agreed. "In the end, the more the U.S. economy becomes debt-driven and debtdependent, the greater the risks and subsequent adjustments down the road" for the economy, he said.
spending and tax revenues. Mr. Kubarych does not expect to see any permanent resolution of the tax expiration issues until after the 2008 presidential election. David
Collapses world economy.
Charles Stein, Business Columnist for the Globe, Boston Globe, March 31, 2k2, Lexis
A coincidence? No way. More than any time in the recent past, the United States is the key player in the world economy. "We are
the only locomotive of growth," said Nariman Behravesh, chief economist at DRI-WEFA, a Lexington forecasting
firm. America's dominance is a function both of our strength and the rest of the world's weakness. Europe and Japan, for different reasons, aren't in a
position to make much of a contribution. How did we get here? And what are the implications of our leadership role? The answer to the first
question is easier. America is more critical to the world's economy, in part, because it represents a
growing slice of the pie. According to Economy.com, a Pennsylvania research firm, the United States now accounts for 32 percent
of the world's economic output, up from 25 percent in 1990, and 24 percent in 1980. The numbers climbed because America grew faster than its
competitors, especially in the 1990s, and because the US dollar, the measuring stick, has appreciated in value. The laws of arithmetic dictate that when you get as big as America, you
have a major impact on the other players in the game. In some countries that impact is particularly large. In Singapore, for example, exports to the US account for 27 percent of the gross
domestic product. In Hong Kong, the comparable number is 28 percent. In Mexico, about 25 percent. Simply put,
when we stop buying, these
countries stop selling. And growing.
The bailouts will increase the deficit we are in, and the citizens will have to pay higher
taxes.
Whalen in 08
As if the federal government does not have enough to pay for, the recently negotiated bailout deal has further added
to the government's tab. Understandably, the estimated price tag of $700 billion to buy the mortgage-based assets of
struggling banks is leaving politicians and taxpayers alike shuddering. After all, the thought of plunking down
taxpayer dollars to carry out what the private market should be doing in the first place (not including the $25 billion
that will been doled out to the auto industry) just makes people wonder if government should be allowed to handle
money at all. What is peculiar is not so much the bailout itself, but the concern about it. Yes, $700 billion or thereabouts is a steep price to pay, amounts
to about $2,300 for every man, woman and child in the United States, and there are no guarantees the government will recover what it paid for in these assets.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
45
SCFI 2009
Bailout File
PF
___ of ___
Deficit Bad
The deficit will increase with the bailouts and higher taxes will occur as a result.
Robert Gavin, The Boston Globe 2008 BUSINESS; Pg. A1, ln
The shape and scope of the Wall Street bailout is finally clear, but a big question remains: How
will we pay for it? Propping up the US financial system will require the federal government to borrow hundreds of
billions of dollars, adding to a ballooning deficit that will hamstring the next president and eventually require
Americans to pay higher taxes, analysts said.
The deficit was already set to soar as tax collections plunge in the face of a likely recession. But the cost of bailing
out financial firms, plus an economic stimulus package promised by congressional leaders, could send the national
debt to levels not seen since the Reagan administration, analysts said. Economists forecast the deficit will top
$700 billion in the current fiscal year, which began Oct. 1, up from about $450 billion the previous year.
It's not going to get better in the next fiscal year, either. Over the next two years alone, the government will probably have to borrow
some $1.5 trillion to keep operating, adding to a national debt that now tops $10 trillion, analysts said. Meanwhile, the
government - and taxpayers - face huge increases in the costs of Social Security and Medicare, the healthcare program for the elderly, as some 78 million baby
boomers begin retiring over the next few years.
It's generally viewed as appropriate to increase government spending and deficits to help the nation avoid, moderate, or rebound from recessions,
but running such big deficits over the long term poses several risks to the economy, analysts said.
TAX SHORTFALL AND BAILOUTS SEE RECORD BUDGET DEFICIT IN US
Armitage, 2009 (Jim Armitage, July, 9,2009, The Evening Standard (London), ln ) states that:
The US budget deficit shot up to a record $1.1 trillion (£682.6 billion) during the past nine months, thanks to lower tax receipts and taxpayer-funded bailouts of the
financial system, a Congressional report estimated today. Tax receipts and other revenues during June were an estimated $46 billion ‹ down 18% from the same period in
2008 and the 14th month running in which receipts were lower than the previous year.
Taking the first nine months of the fiscal year (which in the US begins on 1 October), the Congressional Budget Office (CBO) said corporate tax revenues plunged by $133
billion, or 56%, largely due to continued weakness in company profits. The CBO reckons the biggest economy in the world will notch up a peak budget deficit of $1.8 trillion
this fiscal year ‹ far in excess of any previous records. In 2010 it estimates that will improve, but only to around $1.4 trillion.
As well as the fall in corporate profits, the deficit has spiraled due to the $787 billion economic stimulus
package and $700 billion financial bailout program for banks and carmakers.
Bailout Increase Deficit
Gavin, 2008 (Robert Gavin, October 19, 2008, The Boston Globe, ln)
Propping up the US financial
system will require the federal government to borrow hundreds of billions of dollars, adding to a ballooning deficit that
will hamstring the next president and eventually require Americans to pay higher taxes, analysts said.
The shape and scope of the Wall Street bailout is finally clear, but a big question remains: How will we pay for it?
The deficit was already set to soar as tax collections plunge in the face of a likely recession. But the cost of bailing out financial firms, plus an economic stimulus
package promised by congressional leaders, could send the national debt to levels not seen since the Reagan administration, analysts said. Economists forecast
the deficit will top $700 billion in the current fiscal year, which began Oct. 1, up from about $450 billion the previous year.
It's not going to get better in the next fiscal year, either. Over the next two years alone, the government will probably have to borrow
some $1.5 trillion to keep operating, adding to a national debt that now tops $10 trillion, analysts said. Meanwhile, the
government - and taxpayers - face huge increases in the costs of Social Security and Medicare, the healthcare
program for the elderly, as some 78 million baby boomers begin retiring over the next few years.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
46
SCFI 2009
Bailout File
PF
___ of ___
Deficit Bad
U.S. budget deficit sets March record
Crutsinger, 2009 (Martin Crutsinger, April 11, 2009, The Globe and Mail (Canada), Report on Business: International; Economy, ln) reports that
The U.S. Treasury Department said yesterday that the budget deficit increased by $192.3-billion (U.S.) in
March, and is near $1-trillion just halfway through the budget year, as costs of the financial bailout and
recession mount.
Last month's deficit, a record for March, was significantly higher than the $150-billion that economists expected. The deficit already totals $956.8-billion for the
first six months of the budget year, also a record for that period. The Obama administration projects the deficit for the entire year will hit $1.75-trillion. A deficit at
that level would nearly quadruple the previous annual record of $454.8-billion set last year. The March deficit was nearly four times the size of the imbalance in
the same month last year. Nearly $300-billion provided to the nation's banks and other companies to cope with the most severe financial crisis in seven decades
has pushed government spending higher.
The Treasury report said that, through the end of March, $293.4-billion had been provided to support companies
through the $700-billion bailout fund Congress passed last October. That support has been provided primarily to
banks, although insurance giant American International Group Inc. and auto companies General Motors Corp.
General Motors Corp received $46-billion last month, bringing the total assistance provided to the mortgage
finance companies to $59.8-billion since October. The government took control of both last September after they
had suffered billions of dollars in losses on mortgage loans.
TAX SHORTFALL AND BAILOUTS SEE RECORD BUDGET DEFICIT IN US
Armitage, 2009 (Jim Armitage, July, 9,2009, The Evening Standard (London), ln ) states that:
The US budget deficit shot up to a record $1.1 trillion (£682.6 billion) during the past nine months, thanks to lower tax receipts and taxpayer-funded bailouts of the financial system, a Congressional report estimated today. Tax receipts and other revenues
during June were an estimated $46 billion ‹ down 18% from the same period in 2008 and the 14th month running in which receipts were lower than the previous year.
Taking the first nine months of the fiscal year (which in the US begins on 1 October), the Congressional Budget Office (CBO) said corporate tax revenues plunged by $133 billion, or 56%, largely due to continued weakness in company profits. The CBO
reckons the biggest economy in the world will notch up a peak budget deficit of $1.8 trillion this fiscal year ‹ far in excess of any previous records. In 2010 it estimates that will improve, but only to around $1.4 trillion.
As well as the fall in corporate profits, the deficit has spiraled due to the $787 billion economic stimulus package
and $700 billion financial bailout program for banks and carmakers.
National debt negatively impacts the American people, which makes
deficit spending very unpopular
Hanson in 2007
Victor Davis Hanson. [Journalist]. "Charge It! America." October 4, 2007. National Review Online.
http://article.nationalreview.com/?q=ZDM1MjdmNTZmMDM0ODYyNDlhNTFkOWM4YjF hZDk3OTI=.
Even more critical is the toll on our national psyche. Americans don’t like to read that they are borrowing to pay their annual bills, borrowing to import their gas,
borrowing to buy Japanese cars and Chinese consumer goods — and passing on the ever-larger tab to their children.
When they go abroad they feel embarrassed that their currency is weak — and getting weaker. They are bothered by
global whispers that our houses and cars are too large, and that we consume in a manner we haven’t earned.
So our collective debt is not just a problem of fiscal sustainability, but also one of national pride and security.
Especially at a time of war, the perception of strength — political, financial, and military — is critical to our success.
The debt ceiling is soaring out of control – no new spending should be approved
until the debt is taken care of
Erbe in 2007
Erbe. [Columnist for the Scripps Howard News Service]. "We Need National Town Hall on Poverty." Vindy News. September 28, 2007.
http://www.vindy.com/content/opinion/oped/293298134414890.php.
Just this month the treasury secretary asked once more to raise the debt ceiling (the amount the United States can
borrow, mainly from abroad) beyond its current $8.96 TRILLION (with a T) level. When Bush took office, the federal
debt was $5.7 trillion Bush's military spending and tax cuts are the demons pushing us toward financial disaster. But
Congress, which could be acting as a buffer against his spendthrift proclivities, seems incapable of getting spending
under control. Unless our political leaders can curb their fiscal licentiousness, the last thing they ought to be
considering is more
spending.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
47
SCFI 2009
Bailout File
PF
___ of ___
Debt Bad
Debt will slow recovery
Dr. J.D. Foster, the Heritage Foundation January 30, 2009
This debt explosion is likely to raise interest rates significantly for government debt, thereby increasing interest costs
for future generations. More troubling at the moment, this policy will increase interest rates for all private debt such as
home mortgages, consumer loans, and business loans. The near-term consequences of this debt bubble will be a
deeper recession, a longer recession, and a weaker eventual recovery.
Debt may cause inflation or default
The Washington Post January 11, 2009
Now, one reason the United States should not have to default is that, in a pinch, it can print the money it needs to
pay off its debt. In practice, it would not literally print dollar bills; rather, the Federal Reserve would purchase its
bonds. Still, the effect is the same: The Fed, by "monetizing" government debt, would create vast new supplies of
dollars to chase the same goods and services and thus also create inflation. This money-printing option is not
available to countries that issue debt payable in foreign currencies or to countries that have adopted the euro, which
is controlled by the independent European Central Bank.
How unprecedented would default be? The United States has never failed to repay a debt in its history. But it has
twice altered the repayment terms, notes a study by Carmen M. Reinhart of the University of Maryland and Kenneth
S. Rogoff of Harvard University. In 1790, when the infant republic took over the states' colonial-era debts, it deferred
some interest for 10 years. A more pertinent case occurred during the Great Depression. In 1933, President Franklin
D. Roosevelt devalued the dollar by 41 percent against gold. This helped end the vicious cycle of bank failures,
deflation and default that had worsened the economic downturn, but it created another dilemma. Since the Civil War,
borrowers in the United States, including the government, had routinely issued bonds that allowed the holder to
demand repayment in gold or its dollar equivalent, based on the price of gold when the bond was issued. Devaluation
would have dramatically raised, in dollar terms, the burden of repayment. So in 1933, Congress repealed the gold
clause, a decision the Supreme Court upheld in 1935.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
48
SCFI 2009
Bailout File
PF
___ of ___
A2: Decreasing deficit
Decreasing spending does not factor in the economy’s potential, and
could cripple programs that would help the US out economically in the future
Schwartz and Schwenninger in 2007
Bernard Schwartz and Sherle Schwenninger. [Writers]. "Public Investment Works." New America Foundation. Fall 2007.
http://www.newamerica.net/publications/articles/2007/public_investment_works_5903.
But there is an alternate view, holding that the deficit hawk position neither accurately reflects America’s true
economic strength nor represents good policy in light of the very significant changes that have occurred in the
economy over the past decade and a half. In fact, the nature of the American economy today is radically different
than it was in the early 1990s, when the current notion of fiscal responsibility took shape. Over the past decade and a
half, the economy has become more globalized, knowledge-based, and wealth-driven. Behind this transformation
have been major structural developments in the world economy, most notably the increased integration of the world’s financial markets;
the dramatic improvement in productivity growth associated with the information-technology revolution; and the expanded supply of labor, savings, and
productive capacity that has resulted from the integration of China, India, and the former Soviet Union. Together, these
developments allow the
American economy to grow more rapidly with lower wage and goods inflation than was possible in the supplyconstrained, slower-growth period of the early 1990s. Deficit hawks seem not to have fully incorporated these
changes into their understanding of the U.S. economy, nor have they changed the way they measure the economy’s output to reflect the
increased importance and value of wealth and intangibles. As a result, they underestimate the capacity of the economy. Misjudging the economy’s
potential, much like misunderstanding the economy’s challenges, can lead not only to bad policy choices but also to
missed opportunities for policy reforms that would help ensure future economic prosperity. This is the case today when it
comes to the question of public investment in our physical and innovation infrastructure.
Decreasing the deficit may have worked for Clinton in the 90’s, but it is not necessary
in today’s world
Schwartz and Schwenninger in 2007
Bernard Schwartz and Sherle Schwenninger. [Writers]. "Public Investment Works." New America Foundation. Fall 2007.
http://www.newamerica.net/publications/articles/2007/public_investment_works_5903.
The current conventional wisdom within the Democratic Party regarding deficit reduction is an outgrowth of the
successful experience of the Clinton Administration. Faced with congressional opposition to its initial fiscal package, which included some
added public investment spending, the Clinton White House opted for measures that would reduce the budget deficit in a bid to gain the cooperation of Federal
Reserve Chairman Alan Greenspan to lower interest rates. No doubt the Clinton years produced outstanding results in terms of job
creation, economic growth, and business
investment. But how much the Administration’s measures to cut the deficit contributed to this economic performance
is open to debate. Arguably, structural changes in the economy -- such as improving productivity associated with the information revolution and the coming
online of massive new production capacity in Asia -- were more significant to the economy’s performance than were any of the
Administration’s budget measures. But even if one accepts that the budget deficit was a problem in the early 1990s
and needed to be addressed, it does not follow that putting deficit reduction ahead of public investment is the correct policy today. Economic
conditions are far different than they were in 1993, and what was appropriate 15 years ago is wholly inappropriate for
2008.
Arguments against deficit spending are more moral than economic
Weisman in 2004
Jonathan Weisman. [Staff Writer]. "Reagan Policies Gave Green Light to Red Ink." June 9, 2004. Washington Post. Page A11.
http://www.washingtonpost.com/ac2/wpdyn/
A26402-2004Jun8?language=printer.
But after the boom years of the 1990s, and the steady economic slides of those international rivals, some economists
are reevaluating that version of history. The argument against deficits is more about self-righteous moralism than
economics, they say. The Reagan "experience changed the debate dramatically," said Kevin A. Hassett, an
economist at the American Enterprise Institute. "Back then, it seems that everybody believed Reagan must be some
kind of kook and the people who agreed with these views were flimflam artists. Not so anymore."
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
49
SCFI 2009
Bailout File
PF
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
___ of ___
50
SCFI 2009
Bailout File
PF
___ of ___
Balancing the Budget Not Needed
Fixing the budget is not an urgent concern
Klein in 2006
Ezra Klein. "Tapped: The group blog of The American Prospect." December 22, 2006.
The American Prospect.
http://www.prospect.org/csnc/blogs/tapped_archive?month=12&year=2006&base_na
me=post_2328.
Why indeed? But the
argument for largely ignoring the deficit isn't merely political, it's substantive. Deficits don't matter.
Interest rates have not skyrocketed as the government "crowded out" private borrowers. The economy has not
tumbled in the face of Bush's borrowing. I should weaken the claim here a bit. It's not that deficits never matter, it's that, at
this point, they aren't a pressing concern. Yes China could pull out the rug or we could have a national emergency or a variety of
other unforeseen circumstances could occur-- all that's true. But it's not all likely, and it doesn't make deficit reduction
a more urgent priority than other items on the progressive wish list.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
51
SCFI 2009
Bailout File
PF
___ of ___
A2: Housing Problem
Bailout does not directly help housing market, but aid will come by helping banks.
The New York Times, September 22 2008, Michael A. Hiltzik, "Bailout may give housing
market some breathing room"
The rescue plan does nothing in itself to shore up the housing market. Rising defaults and foreclosures on home
loans, spurred partially by declines in home values, are the cause of the collapse in price and tradeability of the
mortgage-backed securities on the books of banks and investors.
But without government action to aid battered banks, financial experts say, mortgages would remain difficult to get
and the housing market's recovery would be further delayed. The most recent sales figures for Southern California show that median
prices were down 34% last month compared with a year earlier. About half the homes sold were foreclosures.
"The nub of the problem is mortgage-backed securities that people have a hard time valuing, and [the rescue plan] doesn't address that," said James R. Lothian,
a professor of finance at Fordham University and a former executive at Citicorp. "But the basic thing that needs to be done is to provide liquidity to the banking
system and markets so we don't have bank runs going on."
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
52
SCFI 2009
Bailout File
PF
___ of ___
A2: Consumer Confidence
Consumer confidence will decrease with bad economy
Turner in 09
(CONSUMER CONFIDENCE, AGGREGATE DEMAND DETERMINANT, AmosWEB, July 19, 2009, Bill Turner)
One of several specific aggregate demand determinants assumed constant when the aggregate demand curve is
constructed, and which shifts the aggregate demand curve when it changes. An increase in consumer confidence
causes an increase (rightward shift) of the aggregate demand curve. A decrease in consumer confidence causes a
decrease (leftward shift) of the aggregate demand curve. Other notable aggregate demand determinants include
interest rates, federal deficit, inflationary expectations, and the money supply.
Buyers' preferences are an important determinant of market demand.

If buyers find that they "like" a good more, then their demand increases.

If buyers find that they "like" a good less, then their demand decreases.
This relation between buyers' preferences and microeconomic markets can be extended to consumer confidence and
the macroeconomic aggregate market.
Rather than focusing on preferences for a specific good, consumer confidence is the household sector's general
perception of the economy. Is the economy healthy? Is it sickly? Is a contraction forthcoming? Will the current
expansion continue?
The confidence that consumers have in the economy affects their willingness to undertake consumption
expenditures.
Consumer confidence will decrease with the economy
Gotha in 04
(consumer confidence, May 27 2004, Allison Gotha)
Consumer confidence alone has little impact on the stock market and has a minimal effect on stock prices and
exchange rates. Because of this the consumer confidence index is generally not used alone as a measure of the
economy but instead is often used with other measures of confidence to analyze the current and future market.
However, the index may affect interest rates as high consumer confidence is generally linked to higher consumer
spending, which can speed inflation.
Temporary increased consumption can't cause prosperity; other measures preferable
Stossel, 2008
John Stossel. "Stimulating Nonsense." February 13, 2008. Real Clear Politics.
Retrieved March 10, 2008, from
http://www.realclearpolitics.com/articles/2008/02/stimulating_nonsense.html.
The other forgotten principle is that consumption can't cause prosperity. Yes,
consumer spending is 70 percent of GDP, but consumption is the result -- not the cause -- of economic growth. You
can't consume what hasn't been produced. Milton Friedman was right. There really is no such thing as a free lunch.
I'm not saying the government can do nothing about the economy. The best thing it can do is get itself out the way.
Economies boom when governments remove impediments to production: high taxes, regulations, subsidies, trade
barriers, manipulation of the money supply, etc. Removing those should be permanent – not temporary -- measures.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
53
SCFI 2009
Bailout File
PF
___ of ___
Dollar Value Impact
The Bailout Will destroy the dollar Leading to World Wide Economic Collapse
Watson 08 (Paul Joseph, Ron Paul: Bailout Will Destroy Dollar, World Economy.)
“Long term this is disastrous,” continued the Congressman, “we’ve already pumped in $700 billion dollars, here’s another $700 billion
dollars – this is going to destroy the dollar – that’s what you should be concerned about – if you destroy the dollar you’re going to
destroy a worldwide economy and that’s what we’re on the verge of doing.”
Paul said that the long term implications of the bailout would be a lot more serious than the problems currently being
experienced by Wall Street.
The dollar is declining as a result of the deficit
Hadar in 2006
Leon Hadar. [Washington Correspondent]. "Declining dollar reflects US policy failure." May 19, 2006. The Business Times Singapore. VIEWS AND OPINIONS.
Lexis Nexis. Accessed October 12, 2007.
According to him, the
declining US dollar as measured by the rising value of gold will continue 'until the American people
demand an end to deficit spending by Congress and unrestrained creation of new dollars by the Federal Reserve and Treasury department'.
Most investors recognize that the federal government's huge debt and deficit spending will continue to grow as the
costs of US military intervention abroad will rise and make the American economy more dependent on foreign
governments and central bankers.
Bailout Will Destroy Dollar, and the World Economy
Watson, 2008 (Paul Joseph Watson, Monday, September 29,2008, Prison Planet, Ron Paul Quote)
As a vote nears on the $700 billion dollar plus bailout bill, Congressman Ron Paul took to the House floor this
morning to warn that the passage of the legislation will destroy the dollar and the world economy.
Stating that the passage of the bailout bill would only make the problem worse, the Congressman from Texas said, “This has nothing to do with free market
capitalism, this has to do with a managed economy, an inflationary system, corporatism, a special interest system, and this has nothing to do with the failure of
our free markets and capitalism.”Paul blamed the current crisis on a Federal Reserve power monopoly over the money and credit system, the ceaseless
borrowing and printing of money, and dismissed the bill as nothing but more of the same
“Long term this is disastrous,” continued the Congressman, “we’ve already pumped in $700 billion dollars, here’s
another $700 billion dollars—this is going to destroy the dollar—that’s what you should be concerned about—if you
destroy the dollar you’re going to destroy a worldwide economy and that’s what we’re on the verge of doing.”
Paul said that the long term implications of the bailout would be a lot more serious than the problems currently being
experienced by Wall Street.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
54
SCFI 2009
Bailout File
PF
___ of ___
Dollar Value Impact
Bailout Decreases Dollar value(The Bailout: Myths, Half-Truths, and Inconsistencies, By: Morgan Housel, September 29, 2008)
Housel, 2008 (Morgan Housel, September 29, 2008, The Bailout: Myths, Half-Truths, and Inconsistencies)
http://www.fool.com/investing/dividends-income/2008/09/29/the-bailout-myths-half-truths-and-inconsistencies.aspx
Inconsistency: Let 'em fail; the sooner they die, the sooner we recover
Hogwash. "Tough medicine" makes sense insofar as the medicine isn't so tough that it kills you. The big factor that needs to be addressed here is that foreigners
own more than one-quarter of all the public debt in America, which in effect gives them the ability to send the financial system into Armageddon if they sense that
our financial fortitude teeters on collapse.
Any large-scale fallout in the financial sector could give foreigners a good reason to start dumping treasuries en masse, causing a bank run on the largest
There is no doubt that such a run would push the value of the dollar to unimaginable
lows, as well as cause a domestic credit crisis to boil into a currency meltdown. Such a meltdown would make any
recovery several orders of magnitude more difficult than it would be with the bailout.
debtor in the world: the U.S. government.
In all fairness, issuing $700 billion will have a seriously negative affect on the value of the dollar as well, but it pales in
comparison to the amount of carnage foreign investors could bring if they gave up on us. Relying on the kindness of
strangers is a tough spot to be in, people.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
55
SCFI 2009
Bailout File
PF
___ of ___
Free Market Good
Country’s prosperity is due to lack of government interference.
Brooks in 2008 (David, Bailout to Nowhere, New York Times)
"Not so long ago, corporate giants with names like PanAm, ITT and Montgomery Ward roamed the earth. They faded
and were replaced by new companies with names like Microsoft, Southwest Airlines and Target. The U.S. became
famous for this pattern of decay and new growth. Over time, American government built a bigger safety net so workers could survive the
vicissitudes of this creative destruction — with unemployment insurance and soon, one hopes, health care security. But the government has
generally not interfered in the dynamic process itself, which is the source of the country’s prosperity [...] But this, apparently,
is about to change. Democrats from Barack Obama to Nancy Pelosi want to grant immortality to General Motors, Chrysler and Ford. They have decided to follow
an earlier $25 billion loan with a $50 billion bailout, which would inevitably be followed by more billions later, because if these companies are not permitted to go
bankrupt now, they never will be."
Free Market good
Wharton, 2009 (The First Collegate School of Business, “Rewarding Failure: Will the Crisis Leave a Residue of Moral Hazard?”
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2282#
Economists generally argue that governments are not as good as
free markets at allocating resources and demanding efficiency. "The bottom line is that I would be hard-pressed to come up with a publicinterest reason as to why a government bailout of a firm that has failed is appropriate," said Wharton finance professor Robert Inman. So long as people want to
fly, companies will form to satisfy the demand, he said.
Wharton, 2009 (The First Collegate School of Business, “Rewarding Failure: Will the Crisis Leave a Residue of Moral Hazard?”
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2282# Yet, said Inman, a government bailout is not necessarily the way to make
them operate better, and it’s unfair to competitors who have been better managed. "If I can be sloppy and inefficient,
or if I can fail to insure against predictable risk and get bailed out, well then I’m going to be sloppy and inefficient,"
Inman said. The airlines, he added, do have access to insurance to cover losses from catastrophes.
Wharton, 2009 (The First Collegate School of Business, “Rewarding Failure: Will the Crisis Leave a Residue of Moral Hazard?”
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2282# "We are cleaning up mistakes that have accumulated
over the past decade," he noted, citing overestimates of passenger demand and allocation of planes to the wrong markets or
wrong routes. "This is always the role of recession. It is to sweep out the excess capacity. It is to sweep out the
redundant inventory. It is not a pleasant process. It is the hallmark of free markets that we allow people to fail."
Stracke, 2007 (Christian, “Sub-Prime Bailout: Good Idea or ‘Moral Hazard?’” A federal bailout of shaky subprime lenders
would amount to a "subsidy for risky behavior," says Christian Stracke, a senior credit strategist at the research firm
CreditSights. "You would encourage future risky lending and borrowing by signaling that in extreme circumstances,
the government will bail out bad lenders," he says.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
56
SCFI 2009
Bailout File
PF
___ of ___
Bailouts Bad For Global Economy
It is too late to save the global economy.
Hoefle, John. EIREconomics: Bailouts Won’t Save a Global Economy That’s Breaking Apart. December 19, 2009
The combined effects of cutbacks in mining and cargo transportation reflect a breakdown in the global supply chain.
If the mines do not produce and the ores do not ship, then the fertilizers necessary for agriculture and the metals
necessary for manufacturing will not be produced, with devastating consequences.
These declines are accelerating as the effects of the financial collapse spread. We are losing the capability to
produce and transport products upon which human life depends, and the consequences will be horrific. According to
the UN Food ad Agriculture Organization, 14% of the world’s population—some 963 millionpeople—are
malnourished, a increase of 40 million people in one year. The financial crisis is also wreaking havoc on U.S. employment. The number of
people filing for unemployment compensation for the first time hit a 26-year high last week, up a whopping 58,000 to 573,000. Corporate layoffs announced this
year through October were already higher for the year than the full-year totals in 2006 and 2007. Some of the jobs being lost are in the productive sector, but the
majority are in the service and financial sectors. Some 92,000 investment banking job cuts have been announced since October, and more can be expected as
the banking system consolidates. What is rapidly falling apart is the whole globalization model, and the post-industrial society.
Having stripped its industrial might in favor of outsourcing production and relying on services, information, and
finance to drive our economy, we now find ourselves in deep trouble on every front. At the same time, the nations to
which we shifted our production, notably China, are in deep trouble, as shipping collapses and consumer demand in
the U.S. and Europe drops The whole world is breaking apart.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
57
SCFI 2009
Bailout File
PF
___ of ___
Global Impacts
Global economic decline causes extinction
Bearden - 2000, Tom, PhD Nuclear Engineering, April 25, http://www.cheniere.org/correspondence/042500%20-%20modified.htm
Just prior to the terrible collapse of the World economy, with the crumbling well underway and rising, it is inevitable that some of the [wmd] weapons of mass destruction will be used by one or more nations on others.
An interesting result then---as all the old strategic studies used to show---is that everyone will fire everything as fast as possible against their perceived enemies. The reason is simple: When the mass destruction
there will erupt a spasmodic
unleashing of the long range missiles, nuclear arsenals, and biological warfare arsenals of the nations as they feel the
economic collapse, poverty, death, misery, etc. a bit earlier. The ensuing holocaust is certain to immediately draw in the major
nations also, and literally a hell on earth will result. In short, we will get the great Armageddon we have been fearing since the advent of the
weapons are unleashed at all, the only chance a nation has to survive is to desperately try to destroy its perceived enemies before they destroy it. So
nuclear genie. Right now, my personal estimate is that we have about a 99% chance of that scenario or some modified version of it, resulting.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
58
SCFI 2009
Bailout File
PF
___ of ___
Global Links
US Economic Troubles Affect the World Economy
COHA Research Associate, October 17th, 2008
The world economy is facing a strong recession due to the explosion of the financial crisis in the U.S. market, which
was not widely anticipated. Global growth is expected to stay close to zero for months, as happened during the 2001
world recession. The economies of the United States, Western Europe, and Japan are most likely going to
experience economic contractions in the near future. However, it will be much more difficult for less developed countries such as those
in Latin America to come through this global economic breakdown.
Bailouts cause terrorism
Poor in 2009 (Jeff March 19,2009 Fox Biz 'Happy Hour' Co-Host: 'AIG Bailout Funds Terrorism'http://newsbusters.org/blogs/jeff-poor/2009/03/19/fox-bizhappy-hour-co-host-aig-bailout-funds-terrorism
While there has been a lot of outrage over taxpayer money being used to fund $165 million in bonuses paid out to American International Group (AIG) executives
propagated by the media, Fox Business "Happy Hour" co-host Cody Willard suggested the bailout money is going to something far worse - terrorism, specifically
al-Qaida.
On March 18, The Wall Street Journal reported that some of the money the U.S. government paid out to AIG might be benefiting hedge funds that bet on a failing
housing market. According to the report, investment banks like Goldman Sachs (NYSE:GS) and Deutsche Bank (NYSE:DB) sold financial instruments to hedge
funds betting defaults would increase.
"AIG bailout funds terrorism," Willard said. "This is what it's all about guys, it's the most politically well-connected. AIG
aid is not going just to AIG shareholders, but more of the point is that it's going to Goldman Sachs, Deutsche Bank
and these other banks, whose customers are yes - these giant hedge funds."
Story Continues Below Ad ↓
Willard alleged the link between terrorism and the AIG bailout is the money that went to Goldman Sachs and Deutsche Bank connected to hedge funds, which
are invested in heavily by sovereign wealth funds.
"And who invests in the giant hedge funds? Sovereign wealth funds that also fund terrorism," Willard added. "So, if
your rep voted for TARP, TALP, the stimulus package from last year or this year or any of these other corporate
welfare bailouts - they're directly responsible for redistributing your money to al-Qaida."
According to a 2008 Wall Street Journal report, Saudi Arabia, Kuwait, Qatar, Oman, the United Arab Emirates, Libya and Algeria have at least $25 billion
invested in sovereign wealth in various places around the world.
The federal government propping up AIG started back in September 2008 with an initial $85 billion. Several other loans were made to AIG and by the end of
2008 the federal government lent a total of $150 billion to AIG. The taxpayers have an 80-percent stake in the insurance giant
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
59
SCFI 2009
Bailout File
PF
___ of ___
A2 Inflation
A little inflation is actually a good thing.
Syre, 2009 (Steven, Inflation doesn't have to deflate your investment goals, The Boston Globe)
No one really knows how much prices could rise or how long it might take for serious inflation to take hold. IHS Global Insight in Lexington predicts inflation of just
1.5 percent next year and only 2.5 percent annually over the following three years. And some economists think the entire inflation threat will fizzle. Most
investment managers, however, do acknowledge an inflation problem on the horizon, but even they think it's too early to spend a lot of time worrying about
it.But even if there is inflation, the news isn't all bad. First, a little bit of inflation can actually be good for the economy
and investments. Second, there are some ways investors can hedge the impact of inflation on their portfolios.
Commodities are one common hedge because their prices tend to adjust for inflation right away. Gold is what most investors
think about first, but it tends to do best in periods of instability and has already climbed dramatically. Stocks of companies whose businesses involve commodities
or can increase prices rapidly perform better when inflation is a factor.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
60
SCFI 2009
Bailout File
PF
___ of ___
A2: Competition
Natural flow of companies disturbed
Philosopher in 2009 (March 17 2009, Will the Bailout Hurt Competition? http://aphilosopher.wordpress.com/2009/03/17/will-thebailout-hurt-competition/
One view that is typically touted by capitalists is that competition is good. This view was most famously presented by Adam Smith. His view, to oversimplify things
a great deal, was that competition between individuals and businesses would result in better and cheaper products. This would be good for everyone. Obviously,
the monopolies of the robber baron era showed that unregulated competition turns out to have rather negative effects. However, too much limitation of
competition can also have very negative effects as well.
While I am not an economist (which is looking like a better thing each day), one concern I have about the bailout is that it might create some unforseen harms.
One harm worth considering is that bailing out failing companies serves to limit the rise of competing companies. For
example, with AIG failing (yet still trying to pay out huge executive bonuses) there would seem to be new openings
where AIG had been doing business. This would seem to open the door for new companies (or older companies that
are still functional) to move in and take AIG’s business. Since AIG is failing, this would seem to be a good thing-after
all, having successful companies filling these allegedly essential niches in the economy would help stabilize the
economy. Further, these companies would not be using taxpayer money to get the job done.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
61
SCFI 2009
Bailout File
PF
___ of ___
A2: Small Businesses helped
After bailout businesses will still fail
Heather in 2008 (Dec 082008 Richard Shelby Threatens Filibuster Over Auto Bailout http://videocafe.crooksandliars.com/heather/richard-shelbythreatens-filibuster-over-auto)
Wallace: Sen. Shelby you've been one of the leading critics of any bailout. From what you're hearing, $15 billion get
them through till March, gonna' have an administrator to make sure they keep their promise. Will you support that?
Shelby: Well absolutely not. I think this is a bridge loan to nowhere. This is a down payment on many billions to
come. This is not something that happened overnight. This is thirty years in the making. These companies basically
have failed, are failing. They probably need according to some people about sixty percent of the management to go
and about forty percent downsize of the workers. They've got to compete. They can't compete today and the question
is will they be able to compete tomorrow. We would like to save them but they've got to save themselves and I don't
believe they're willing to save themselves because they could be restructured, the right way and they don't want to do
that.
Bailouts harm small bank businesses/crediblilty
DAVID SEGAL, (May 11, 2009, We’re Dull, Small Banks Say, but Have Profits A. J. Mast for The New York Times, At a recent conference of the Indiana
Bankers Association, attendees proudly called their business plodding and boring. )
As a result, community bankers have felt compelled in recent months to mount public relations campaigns to
emphasize their fiscal health and in some cases to announce they rejected Troubled Asset Relief Program, or TARP, funds.
Some have held cookouts, others have held “reassurance” meetings in their lobbies, hoping to educate customers and prevent panics. All are dealing with
banker jokes and the occasional wisecrack.
“I was on vacation in California and this guy I had just met said, ‘So, traveling on that bailout money, huh?’ ” said
Blake Heid, of First Option Bank in Paola, Kansas, which didn’t take any bailout money. “I didn’t find that very
amusing.”
Though they greatly outnumber the national and regional banks, community banks have barely registered in any of
the fallout from the credit crisis, in part because they hold less than 10 percent of the $13.8 trillion in bank assets
nationwide.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
62
SCFI 2009
Bailout File
PF
___ of ___
A2:Stability Bailouts
Lead to instability in US economy
Hill in 09 (Patrice, THE WASHINGTON TIMES
"Fiscal actions are unlikely to promote a lasting recovery unless they are accompanied by strong measures to
further stabilize and strengthen the financial system," he told the London School of Economics. "History
demonstrates conclusively that a modern economy cannot grow if its financial system is not operating effectively."
Detroit example that Bailouts won’t stabilize
Antworth 08 (Becky Christian Science Monitor, December 4, 2008, Thursday, With a Detroit bailout, the Fed may become too invested to quit,
What if $25 billion isn't enough for the auto industry? Are we prepared to inject more, indefinitely? To clamp another
ball and chain onto the ankle of our crippled economy? AIG, clamped since September, has the Fed on a monthly
payment plan - and still the toxic debts swamp their deck (while the captains have formed a conga line on a luxury liner somewhere). Or, if
$25 billion isn't enough, are we prepared to walk away and waste our investment?
Bailouts cause instability in Europe
The Washington Post, October 7, 2008 Tuesday, Regional Edition
Now, Europe;
As financial instability crosses the Atlantic, the need for policy coordination grows.
But certainly it will be some time
before the $700 billion bailout is up and running. In the meantime, panic is spreading through the
global financial system -- and is manifest in a near-breakdown of lending among banks as well as in extremely tight conditions in the market for
commercial paper, the short-term debt with which companies finance their operations. The Federal Reserve, its crisis-fighting capacities
already stretched, announced yesterday that it would begin paying interest on reserves that banks hold at the Fed,
allowing it to pump more cash into the markets without yet cutting interest rates. The Fed also expanded its 28-day
and 84-day Term Auction Facility -- or TAF -- to $150 billion each. Still, a sharp and possibly long recession seems
inevitable.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
63
SCFI 2009
Bailout File
PF
___ of ___
A2 : International Realations increase
-
The link between the bailouts and international relations increasing is that fact that once
our economy gets running more efficiently then theirs does as well. The flaw with this
analysis is that bailouts don’t work! We concede that if our economy increases there
does as well. But as long as we can prove that bailouts hurt our economy we win this
argument!
Bailouts Create long term risks and will destroy our position of power globally
Gay and Ghodsi 09 (Dr. Sebastion, Nadia Nasser, Stimulus: A Good Strategy?, Dr. Sebastion Gay is a private consultant and an Economics lecturer
at the University of Chicago. )
Large-scale financial support by the government also bears similar long-term risks; however, the increase in financial support brings an additional factor to
consider. For now, the government is supporting its increased spending by printing money (a short-term solution) and borrowing from growing nations like
International relations may be seriously impacted by the shifting dynamic between the United States as a
debtor and other international players as its lenders.
China.
Never worked in history, dreadful abyss
Milner October 2008, (Brian, U.S. bailout welfare for the rich; outspoken investor jim rogers says the rescue plan will make things worse, The globe and mail)
Director of Training at Industrial Training Company (ITC)
Environmental and Geoscience Manager at Schnabel Engineering
The proposed U.S. financial bailout scheme is a dreadful mistake that could plunge the country into an economic
abyss for years and will only reward the people who brought the financial system to the brink of disaster, says famed investor Jim Rogers.
"It's the wrong approach," Mr. Rogers said yesterday while huffing through a lengthy morning workout on an exercise bike in a downtown Toronto hotel.
"This has never worked in history. Other approaches have worked, which they're ignoring. Part of the problem
is these guys don't know any history.
"All they know is, Goldman Sachs is on the phone saying help, help, help
After Bank Bailout of 1874 The Bank Still Failed!!!
Sullivan 08 (Laura, A Brief History of Government Bailout,)
The first major bank to fail in the US since the FDIC was established was United States National Savings Bank, worth
$1.5 billion. Shortly thereafter, on October 8, 1974, the Franklin National Bank in New York also failed. At the time, it was
the largest bank failure in US history, and Michele Sindona, the mafia-connected member with a controlling interest in the bank, eventually went to
prison and died of cyanide poisoning. The Feds assumed the debts in those cases, and proceeded with a bailout that was simply unthinkable at the time, the
equivalent of $7.7 billion by current standards.
If we refuse to use bailouts, our international relations goes down because we are the
cause of other nations failing
Michelle Le Roux, March 19, 2009, “Political opportunity in a world connected by financial crisis” Business Day
South Africa
The global financial crisis has reconfirmed our global interconnectedness. Entire nations are bankrupt (Iceland) and the
world is scrambling to find a comprehensive regulatory solution. At least we know this: the global financial crisis
reminds us that other nations' actions can affect us all. We certainly appreciate, as never before, that our progress
and success are interdependent. If we are intolerant of reckless economics from our trading partners and neighbours,
why do we tolerate dangerous governance? If we would pressure, cajole and provide incentives to each other to
ensure economic stability and progress, why not to ensure stable and progressive governance? This means that the global
and US economies are entirely interconnected. If one them were to fail, they would both suffer catastrophic consequences.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
64
SCFI 2009
Bailout File
PF
___ of ___
A2: Business Transperancy
Federal Reserve refused to disclose all info
Bloomberg, February 9 2009, Mark Pittman and Bob Ivry, "U.S. Taxpayers Risk $9.7 Trillion on Bailout Programs)
Most of the spending programs are run out of the Federal Reserve Bank of New York, where Geithner served as president. He was sworn in as Treasury
secretary on Jan. 26.
When Congress approved the TARP on Oct. 3, Fed Chairman Ben S. Bernanke and then Treasury Secretary Henry
Paulson acknowledged the need for transparency and oversight. The Federal Reserve so far is refusing to disclose
loan recipients or reveal the collateral they are taking in return. Collateral is an asset pledged by a borrower in the
event a loan payment isn’t made
Bailouts = Lack of Transparency
New York Times, February 9 209, David Barstow and Mike McIntire, "Calls for Clarity in New Bailout for U.S. Banks"
Despite the efforts of multiple oversight bodies, members of Congress and news organizations, central elements of
the execution and impact of the first stage of the bailout still remain all but invisible, even though hundreds of billions
of tax dollars have already been invested in more than 350 banks, two major automakers and the nation’s largest
insurance company.
The lack of transparency has sown confusion and suspicion, with chastened bankers even facing allegations that
they are dipping into the public trough to subsidize bonuses and lavish retreats. And with half the TARP money still to be spent, the
failure early on to create clear-cut mechanisms for holding banks accountable for how they spend tax dollars is hardening criticism in both parties.
Too Much Disclosure Can Be Bad for Companies
Los Angeles Times, April 19 2009, Jim Puzzanghere and E. Scott Reckard, "Bank bailout plan's 'stress tests' already causing stress"
Regulators and administration officials are still wrestling with how much of the test results to disclose.
Releasing too much information could undermine the banks' health -- the very thing that the administration is trying to
avoid, experts said. Revealing too little after weeks of buildup would cast doubt on the process and create a vacuum
in which investors and depositors would make their own assumptions, possibly leading to runs on the weakest banks.
"They've gotten themselves in a pickle on this thing," said Bert Ely, an independent banking analyst. "It's clear they didn't think through how this was going to play
out."
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
65
SCFI 2009
Bailout File
PF
___ of ___
A2: Taxpayers and the Bailout
Taxpayers may not benefit from bailout
Associated Press, May 20, 2009. “Bailouts could deprive public”
The race to repay federal bailout money could end up reducing the amount that taxpayers eventually get back.
Some banks that want out of the Troubled Asset Relief Program may be allowed to buy back government
investments at below-market prices. That could cut into taxpayers' potential profits by billions of dollars.
Morgan Stanley and JPMorgan Chase & Co. have notified federal regulators of an interest in returning their share of the $700-billion bailout. Returning the
money would let banks avoid restrictions on executive pay and hiring.
Approval for big banks to repay TARP funds could start early next month, a Federal Reserve official said yesterday on condition of anonymity.
A key selling point for the bailout has been that as the financial crisis eased and banks regained their health, taxpayers would get to go along for the ride and
benefit from the stock gains. Settling for less than market value would be an injustice to taxpayers who rescued banks , said
Rep. Brad Sherman (D-Calif.), who voted against the bailout.
Others would like the government to get out of the banking sector. "I don't think the banks are trying to shortchange taxpayers on the warrants," said Gerard
Cassidy, a banking analyst at RBC Capital Markets.
The government has to borrow $1.5 trillion from tax payers.
Gavin, 2008 (Robert Gavin, October 19, 2008, The Boston Globe, ln)
The shape and scope of the Wall Street bailout is finally clear, but a big question remains: How will we pay for it? Propping
up the US financial
system will require the federal government to borrow hundreds of billions of dollars, adding to a ballooning deficit that
will hamstring the next president and eventually require Americans to pay higher taxes, analysts said.
The deficit was already set to soar as tax collections plunge in the face of a likely recession. But the cost of bailing out financial firms, plus an economic stimulus
package promised by congressional leaders, could send the national debt to levels not seen since the Reagan administration, analysts said. Economists forecast
the deficit will top $700 billion in the current fiscal year, which began Oct. 1, up from about $450 billion the previous year.
It's not going to get better in the next fiscal year, either. Over the next two years alone, the government will probably have
to borrow some $1.5 trillion to keep operating, adding to a national debt that now tops $10 trillion, analysts said. Meanwhile,
the government - and taxpayers - face huge increases in the costs of Social Security and Medicare, the healthcare
program for the elderly, as some 78 million baby boomers begin retiring over the next few years.
Bailout Burden Transfers from the Government to the Taxpayers Pocket
By Daniel
Stone | Newsweek Web Exclusive
Sep 17, 2008 | Updated: 12:40 p.m. ET Sep 17, 2008
So much of the burden gets transferred to the taxpayer. Is that fair?
The taxpayers are already feeling the pain from being put in these loans in the first place, many of them losing their
homes to foreclosure because they were in these loans. There's also the larger impact: it's not always just the
borrower that is affected, but also all of his neighbors. Even people who are not experiencing foreclosure experience
a decline in their home value because of the foreclosures next door. So the taxpayers are really bearing the burden
twice because of the initial failures of the market regulators.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
66
SCFI 2009
Bailout File
PF
___ of ___
A2: Taxpayers and the Bailout
The bailouts will increase the deficit we are in, and the citizens will have to pay higher
taxes.
Whalen in 08
As if the federal government does not have enough to pay for, the recently negotiated bailout deal has further added
to the government's tab. Understandably, the estimated price tag of $700 billion to buy the mortgage-based assets of
struggling banks is leaving politicians and taxpayers alike shuddering. After all, the thought of plunking down
taxpayer dollars to carry out what the private market should be doing in the first place (not including the $25 billion
that will been doled out to the auto industry) just makes people wonder if government should be allowed to handle
money at all. What is peculiar is not so much the bailout itself, but the concern about it. Yes, $700 billion or thereabouts is a steep price to pay,
amounts to about $2,300 for every man, woman and child in the United States, and there are no guarantees the
government will recover what it paid for in these assets.
The deficit will increase with the bailouts and higher taxes will occur as a result.
Robert Gavin, The Boston Globe 2008 BUSINESS; Pg. A1, ln
The shape and scope of the Wall Street bailout is finally clear, but a big question remains: How will we pay for it? Propping
up the US financial
system will require the federal government to borrow hundreds of billions of dollars, adding to a ballooning deficit that
will hamstring the next president and eventually require Americans to pay higher taxes, analysts said.
The deficit was already set to soar as tax collections plunge in the face of a likely recession. But the cost of bailing
out financial firms, plus an economic stimulus package promised by congressional leaders, could send the national
debt to levels not seen since the Reagan administration, analysts said. Economists forecast the deficit will top $700
billion in the current fiscal year, which began Oct. 1, up from about $450 billion the previous year.
It's not going to get better in the next fiscal year, either. Over the next two years alone, the government will probably have to borrow
some $1.5 trillion to keep operating, adding to a national debt that now tops $10 trillion, analysts said. Meanwhile, the
government - and taxpayers - face huge increases in the costs of Social Security and Medicare, the healthcare program for the elderly, as some 78 million baby
boomers begin retiring over the next few years.
It's generally viewed as appropriate to increase government spending and deficits to help the nation avoid, moderate,
or rebound from recessions, but running such big deficits over the long term poses several risks to the economy,
analysts said.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
67
SCFI 2009
Bailout File
PF
___ of ___
A2: Taxpayers and the Bailout
BLOCK
-
When the government bailouts are implemented, a lot of them are failures that cause the
taxpayers to ultimately pay the price. Meaning Bailouts = tax increase. This is detrimental to our
economic growth in the fact that this will decrease consumer confidence in this faith based
economy. And defy the free market by getting too much government involvement.
Penn State Railroad Bailout of 1970 did not target the real problem therefore it was
not fixed and it currently costs Taxpayers $25,000 an hour.
Plummer 08 (Joe, Dishonest Money Financing the road to ruin, Chief Research Officer of the ARF)
But why go
the bankruptcy route when the Federal Reserve System had been created for precisely this kind of
situation? …En masse, they descended on Congress; Penn Central’s executives, bankers, union representatives, even the Navy
Department, all speaking of the dire threat to the “public interest” - even national security - should Penn Central be
allowed to go under. Congress patriotically responded by ordering an immediate pay raise of 13 ½ per cent for all
union employees, adding yet another financial burden to the already failed company. And with the “Emergency Rail
Services Act” they authorized $125 million in federal loan guarantees.
Of course neither of these moves solved the underlying “root cause” of Penn’s financial problems and the railroad was
“nationalized” (“-a euphemism for becoming a black hole into which tax dollars disappear”) in 1971. By 1973 it had been split into two divisions: Amtrak and
Conrail. Amtrak handled passenger services and Conrail handled freight.
By 1998, Congress had dumped $21 Billion into Amtrak and its liabilities still exceeded its assets by roughly
$14 billion. In 2002, it was burning up roughly $25,000 per hour (24 hours a day, 7 days a week) of
taxpayer’s money.
Lockheed actually never paid back the Loan from the U.S. Gov.
Plummer 08 (Joe, Dishonest Money Financing the road to ruin, Chief Research Officer of the ARF)
“…every bit of the money used to pay back the loans came from defense contracts which were awarded by the
same government which was guaranteeing those loans. …Taxpayers were doomed to pay the bill either way.”
Tax increase inevitable, raise taxes in recession kill economy
Oversight 2008 (Salient, Tax increase plan must follow bailout, New Silent oversight Newscastle, Australia)
Without some way of paying for the debt, the only option seems to be tax increases. The bailout plan is just too large,
and US government spending is just too (relatively) small for any form of expenditure cutting on behalf of the
government - unless, of course, Americans are happy to suddenly give up Social Security or shut down the military.
And the ones who should shoulder these tax increases? Why not the ones who got the US into this mess in the first place? There seems no choice but to
increase income taxes on the highest marginal tax rate. The corporate tax rate should also be increased.
Naturally, such proposals would leave some spluttering into their gin and tonics. "Raise
taxes?" they say, "What a preposterous thing to
suggest! Don't you know that lower tax rates encourage economic growth? If we raise taxes during a recession, we'll
be killing the goose that lays the golden egg!".
Bailout puts too much pressure on taxpayers
Jon Ward, The Washington Times, October 14, 2008 “Bush, Obama tout taxpayer returns”
"If the plan hasn't made taxpayers money or broken even after five years, the president will send a proposal to
Congress on how to recover the funds invested by the Treasury Department," said Nick Simpson, a spokesman for House Minority
Whip Roy Blunt, Missouri Republican.
The short-term goal of the TARP is to allow institutions to regain their financial footing. Over the long term, the government hopes that the assets it purchases will
rise in value as the economy stabilizes.Economists and financial analysts were split on whether that idea is likely to work.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
68
SCFI 2009
Bailout File
PF
___ of ___
Public Sector Burden
The Bailout puts too much burden on the Public Sector
Cheryl D. Block 1992, Indiana Law Journal, Indiana University “Overt and Covert Bailouts: Developing a Public Bailout Policy”
In the minds of many, such a presumption probably exists already. Many
policy makers undoubtedly view bailout as a solution for only
the most extreme cases. At the same time, however, early bailouts set a stage that makes subsequent requests for
assistance more difficult to resist. When Congress authorized loan guarantees to the Lockheed Aircraft Corporation
in 1971, it set a precedent for later similar guarantees to Chrysler and New York City. The first "essentiality finding"
made by the FDIC to save the Unity Bank of Boston set the precedent for subsequent bank bailouts under the
discretionary essentiality doctrine. In addition, government reports such as the U.S. Comptroller General Report, imply that further
rescues are anticipated. While such forethought and development of guidelines is wise, a formal bailout policy should
not leave the impression that bailouts will be easy to come by. To the contrary, a presumption against bailouts should
be the first principle in any formal enterprise failure policy.
Bailout Burden Transfers from the Government to the Taxpayers Pocket
By Daniel
Stone | Newsweek Web Exclusive
Sep 17, 2008 | Updated: 12:40 p.m. ET Sep 17, 2008
So much of the burden gets transferred to the taxpayer. Is that fair?
The taxpayers are already feeling the pain from being put in these loans in the first place, many of them losing their
homes to foreclosure because they were in these loans. There's also the larger impact: it's not always just the
borrower that is affected, but also all of his neighbors. Even people who are not experiencing foreclosure experience
a decline in their home value because of the foreclosures next door. So the taxpayers are really bearing the burden
twice because of the initial failures of the market regulators.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
69
SCFI 2009
Bailout File
PF
___ of ___
A2: Company Risk taking
Bailed out companies profiting from risk
The Economist July 16, 2009
Goldman claims that most of its profit came not from “proprietary” trading, or punting its own money, but by acting as
a middleman, making markets for clients in everything from bonds and shares to currencies and commodities. Such
business, barely profitable in the boom years, has become a gold mine as competition has dwindled and bid-ask
spreads (the money dealers pocket on trades) have ballooned. A bank with the capital and cojones to deal mortgagebacked securities issued by Fannie Mae or Freddie Mac can earn 10-15 times more than before the crisis.
Financial rules still allow unregulated markets
A.P. reprinted by Forbes June 26, 2009
WASHINGTON -- The head of the rule-setting board for corporate accounting on Friday said financial rules need
significant changes to bring an end to massive, unbridled markets and prevent a repeat of the economic crisis.
No regulation and extra spending may cause a new crisis
July 15 (Bloomberg)
A new financial crisis will develop from the failure to effectively regulate derivatives and the extra global liquidity from
stimulus spending, Templeton Asset Management Ltd.’s Mark Mobius said.
Derivatives total huge costs
July 15 (Bloomberg)
Mobius didn’t explain what he thought was needed for effective regulation of derivatives, which are contracts used to
hedge against changes in stocks, bonds, currencies, commodities, interest rates and weather. The Bank for
International Settlements estimates outstanding derivatives total $592 trillion, about 10 times global gross domestic
product.
Because of bailouts banks are willing to take more risks
According to Gary Stern and Ron J. Feldman in “Too Big to Fail : The Hazards of Bank Bailouts” Brookings Institution
Press, 2004. p 34. <http://site.ebrary.com/lib/dixie/Doc?id=10063877&ppg=34>
Excessive risk-taking also manifests itself in the provision of loans that would not be made if bank creditors bore the
risk of bank failure. In this case, the loan decisions made by the banks with TBTF protection could lead to the
financing of projects with limited potential to increase economic output. A review of bank lending in Japan, for
example, finds that government bailout policies gave banks an incentive to misallocate credit to weak borrowers who
actually became weaker after receiving the credit. Not only may banks take riskier actions, but they also may assume
excessive risk by growing faster than they would otherwise. In total, these actions misallocate resources to lower-value uses and, if
done on a large scale, can retard current and future economic growth.
Moral Hazard causes companies and individuals take more risks
Gerald P. O'Driscoll Jr., 2004 (CATO Institute, The Politcal Changes in Moral Hazard, http://www.cato.org/pub_display.php?pub_id=8849)
Moral hazard occurs when some action or policy alters the behavior of individuals in a counterproductive way.
Specifically, a policy intending to mitigate risk causes individuals instead to assume more risk. For example, a poorly
designed policy insuring against fire could lead individuals to diminish resources devoted to fire prevention. In that
case, the insurance would increase the probability of the insured risk occurring. (Of course, well-designed insurance
policies should reduce risk. And in competitive markets, that is what normally happens.)
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
70
SCFI 2009
Bailout File
PF
___ of ___
A2:TARP
The Tarp program has not worked to date because it does not address the
fundamental problem facing the US economy
(Dorish, Joe, Jan 18, 2009 Why TARP Doesn't Work http://www.socyberty.com/Economics/Why-TARP-Doesnt-Work.462937)
Beginning in mid 2007 financial companies in the US started taking write-downs of assets. When
this happens money is lost from the
economy and all money still in existence gains in value. When money gains in value certain things happen. Those
things are:
1) Consumers slow their spending. People will always spend less when money gains in value.
2) Asset prices will decline. As money gains in value assets must decline in value.
3) Prices must fall. As money gains in value prices must fall to reflect that gain.
4) Unemployment will rise. As people slow spending businesses must cut back as sales slow.
5) Borrowing will decline. Borrowing money that has gained in value is never a good idea.
6) Overall economic growth will decline to reflect all of the above.
The TARP program has never really addressed these issues and I will explain why in a minute. The TARP program was passed by Congress and authorized
the Treasury Department to borrow up to $750 billion dollars to purchase troubled assets and for other purposes. And in that sentence is the reason why the
TARP program does not address the fundamental issue facing the US Economy.
Borrow the money. The
Treasury Department cannot simply create this $750 billion dollars it has to borrow the money.
That means when the Treasury does its auctions to raise the money someone is always on the other end of that
transaction loaning the Treasury Department the money. No new money is being created by these transactions.
Hence the TARP program does not replace the amount of money lost to the economy from all the write-downs. All
the TARP does is really move money around the economy as the Treasury Department decides to use it. TARP creates
no new money to replace the lost money.
In order for the TARP program to work it would have to have created new money to replace the lost money. If the lost money is replaced then all money in
existence stops gaining in value and consumers will go back to spending money at normal levels, prices will stop falling, asset prices will stop declining,
unemployment will stop rising, demand for borrowed money will return and economic growth will once again turn positive.
Resolved: That, on balance, the United States federal government bailouts have positive impacts on the economy.
71