Bailout legislation leaves many issues unresolved

Since the failure of Lehman Brothers and the passage of the Troubled Assets Relief Program the problems that caused the Great Recession remain largely unsolved. (Photo: President Barack Obama signs the 2010 Wall Street Reform Act. Source: Jim Young/Reuters)

After the fall of the Lehman Brothers in 2008, congress passed the Troubled Asset Relief Program. The National Treasury calculated a 4.2 billion dollar write off, known as the Troubled Asset Relief Program for failing businesses and firms. America was in a situation of economic downfall, and the government stepped forward and took steps necessary to make sure that the financial system was not destroyed and so the automobile sector could recover. Yet, not only has the bank bailout created a nationwide distrust in banks that still exists today, but legislation has failed to resolve the issues that caused the crisis. Although it was not politically popular at the time, it is now well understood that government intervention was necessary in order to avoid a second Great Depression. Because of the bailouts, our financial system did not completely fail, and we only lost Bear Stearns and the Lehman Brothers, two big firms of their time.

The real issue is found in the conditions in which the bailouts were done, and the incentives that were created. The 2008 bank bailout is proof that when companies like AIG are given economic relief with no strings attached, the government is rewarding bad behavior. Just like any behavioral psychologist will claim, when a behavior is rewarded, there is more of it.  AIG and much of Wall Street are still conducting business just like they did before the panic of 2008. The possibility of another crisis occurring is grave, and banks have no incentive to refrain from risky spending.

The Wall Street Reform Act was passed in 2010 but has no teeth, no long lasting effects because lobbyists have thrown themselves at federal agencies with immense resources in order to slow down financial reform. It would not benefit any politician to penalize these companies that are working with them in order to pass other legislation and promise incumbencies.

With protests like Occupy Wall Street, it is clear this economic favoritism of big business is something many Americans detest, but as long as these firms and businesses yield interest to politicians, not much change will occur. Instead of any possible government oversight on Wall Street that would spot a crisis before it occurred, banks have actually gotten bigger. The “too big to fail” survivors of the financial crisis currently hold $8.5 trillion in assets.  These firms will not be allowed to fail. The American taxpayers may have to save them again.

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