Ailing U.S. Consumers: Where's Our Bailout?

President Bush approved about $6 billion of emergency help on Friday for Americans without a job -- extending unemployment insurance coverage for those whose benefits have run out.

Americans are being hit hard by mounting layoffs, falling home prices, and a plunging stock market. Stocks plummeted again Thursday, with the Dow falling another 445 points and the S&P hitting its lowest level since 1997.

While bailouts are all the rage, so far Washington is proving very stingy when it comes to helping U.S. consumers. Main Street America has gotten some aid, but consumers have received far less than Wall Street.

Congress was unable to muster support for a broader $61 billion stimulus bill that would have done more for consumers; President Bush threatened to veto it. And FDIC chief Sheila Bair is having a hard time getting support for her request to deploy a mere $25 billion for mortgage relief from the $700 billion Troubled Asset Relief Program (TARP) approved by Congress in October. Anything major, it seems, will have to wait for the new Administration and Congress in January.

So far in 2008, U.S. consumers have received about $650 billion in direct help:

• $168 billion fiscal stimulus package in the spring that provided tax rebate checks for individuals and families

• $300 billion for the Hope Now Alliance, a voluntary effort by lenders to help individual homeowners. So far, though, their efforts to modify troubled mortgages haven't kept pace with foreclosures

• Mortgage relief from Citigroup, JPMorgan and Bank of America that's aimed at reworking over $200 billion in troubled mortgages

So again, that's about $650 billion in aid. Even adding the new $6 billion in help toward unemployment benefits, the total still pales next to direct aid given to banks and Wall Street firms.

The ABCs of TARP

Here's a breakdown of where the first portion of that $700 billion TARP bailout has gone:

• $125 billion: America's 9 Biggest Banks
• $80 billion: For additional bank relief
• $45 billion: Relief for smaller banks
• $40 billion: AIG rescue

(Source: Bailoutsleuth.com)

Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke believe that by shoring up the banking system, they are providing relief to Americans. A sickly banking system means no loans to businesses or consumers and much less economic activity, so there's merit to that argument.

The problem is there's no guarantee the money is being used the way it was intended. Not only are banks hoarding their cash rather than lending it, reports continue to surface of banks using bailout money to pay executives big bonuses or throw lavish junkets, as in the case of AIG, which has received a total of $150 billion in government aid so far.

While big, the government's rescue of AIG is but a small part of a ongoing bailout effort that has already exceed $3 trillion.

Here's the tally for all government aid to banks including TARP:

• $2 Trillion: Emergency Fed Loans to Financial Firms
• $700 Billion: TARP (including $40B for AIG)
• $200 Billion: Fannie/Freddie
• $140 Billion: Tax breaks for banks making acquisitions
• $110 Billion: Loans to AIG

(Source: Bailoutsleuth.com)

Big Three Go Begging

In part because of abuses in the first round of TARP funds, everyone else seems to want to get in on the action.

But the most high-profile non-bank bailout request has come from Detroit.

GM's CEO Rick Wagoner says the company will run out of cash before December and that letting automakers fail "would be catastrophic" for the U.S. economy. But Treasury Secretary Hank Paulson reiterated his opposition to using TARP funds to help the Big Three. And Wagoner and his Detroit counterparts got an equally chilly reception when testifying before Congress this week. (The fact the CEOs took private jets to the hearings probably didn't help their cause.)

"The executives of the auto industry have not been able to convince the American people or the Congress that this bailout would be their last," Senate Majority Leader Harry Reid of Nevada said at a news conference.

On Thursday, Congress failed to reach a compromise agreement to allow Detroit to redirect funds from a previously approved $25 billion dollar loan earmarked for fuel-efficiency purposes.

Reid and House Speaker Nancy Pelosi said Democrats are willing to come back in December to reconsider the industry's pleas for aid.

Indeed, playing kick the can down the road is a popular sport in Washington these days.

Looking Ahead

President-elect Barack Obama has pledged to tackle the economic crisis "head on" after being inaugurated on January 20th. Getting fiscal stimulus package to Congress is widely expected to be his first legislative priority.

Former Treasury Secretary Lawrence Summers - a leading candidate to be Obama's Treasury Secretary - said Thursday a package of $500 billion to $700 billion is necessary and needs to be "speedy, substantial and sustained over a several-year interval."

Whatever its ultimate size, the plan is likely to focus on:

• Increased spending on infrastructure, including renewable energy projects
• Tax relief for middle- and low-income Americans
• Increased funding for food stamps
• Aid for states to help cover states for Medicaid costs
• Relief for homeowners
• Relief for automakers (if nothing is done in the interim)

The shape of Obama's stimulus package will definitely be influenced by how the economy and financial markets fare between now and Jan. 20. Given the recent headlines, it's fair to say the new President is going to have to do a lot to revive the economy and aid ailing consumers.