We know that we are facing a high unemployment rate right now, and we know that families all over the United States are feeling the effects. Recent reports indicate that 1 in 10 Americans are receiving food stamps. This is an ugly statistic. The big question is why? Unemployment? Recession? Maybe. But perhaps it is a change of attitude in general. Perhaps one big reason for the increase in food stamps is that they are becoming more socially acceptable, and there is less of a negative stigma for recipients, whereas at one point in time it may have been a pride factor to have not accepted the welfare. There used to be a social stigma associated with food stamps - not that I am opposed to helping people who need it, and with the high unemployment I have no doubt that many more people need it today than in recent years, but in days gone by I know many people personally who would have used government assistance as the absolute last resort., and not one of the first.
Another noticeable difference today is that the social changes we are witnessing are not just with the individual. The FED tried to do whatever they could to reduce the stigma attached to using the Fed’s lending facility. They readily encouraged the use of TARP funds for the big banks. And now, some of the banks that took the taxpayers money are being rewarded for their fiscal irresponsibility. Warren Buffett, an investing icon, was quoted (very correctly, I am afraid), as saying: "At the moment, it is much better to be a financial cripple with a government guarantee than a Gibraltar without one." In his letter to shareholders he points out that companies that received bailout funds (like Citigroup, Bank of America, Freddie and Fannie) are paying lower interest rates on bonds than Buffett’s own company. Why should a company that needed to rely on taxpayers, a company that couldn’t make it on its own, pay lower interest rates on bonds?
I must say that I was proud to hear that Old National Bank, an Indiana-based company, was one of the first four banks to pay back the TARP funds. On March 31, 4 Regional banks returned a total of $338 Million. Obviously, this was a good sign for those banks and good for the tax payers.
But will the Fed try to limit these paybacks? One concern with the TARP paybacks is that it will damage confidence in banks that cannot pay back the money. In other words, the FED is concerned that if healthy banks pay back their bailout money, there may be concerns about banks that don’t pay theirs back. It makes us wonder if the "big boys" will be scorned (or even prevented) from being able to pay back the TARP funds early.
It seems to us that the government and the FED are doing what they can to promote the social change. It seems like they almost want us to rely on government welfare….of course those are just my thoughts – Clark’s Thoughts.
www.clarksthoughts.com
