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Under fire from Democrats and Republicans alike, the White House on Thursday defended giving billions of bailout dollars to banks that plan to reward shareholders and executives — or even buy other banks.
Allowing banks to engage in such normal business activities actually could help loosen lending and revive the sagging economy, said Ed Lazear, chairman of the Council of Economic Advisers. He said the administration would not impose any conditions on banks beyond those required when Congress created the bailout program, which authorized the government to buy stock in financial institutions.
On a day of gloomy economic reports, Lazear predicted "a few tough months" ahead but also said "it is realistic" to think the next president will be presiding over solid growth early in his term after taking office Jan. 20. That would be a welcome change after the economy shrank at a 0.3 percent annual rate in the July-September quarter, the strongest signal yet the nation has fallen into recession.
Despite the gloomy outlook, the White House offered its clearest rejection to date of a second stimulus package to boost the economy. Lazear said that "the appropriate stimulus right now" is only what has already been passed by Congress: the $700 billion financial industry rescue package. But there is growing support on Capitol Hill for billions in federal spending for such initiatives as public works projects, aid for cash-strapped states and new jobless benefits.
Lazear was put before the cameras in the White House briefing room amid a rising chorus of complaints from lawmakers about the latitude that banks will have when they receive bailout money from Washington.
That bailout was originally sold by the administration as a plan for the government to purchase toxic mortgage-based assets from financial institutions, to get them off their books and inspire the resumption of normal lending. After passage, though, the administration decided the better course would be to devote $250 billion into buying ownership stakes in banks.
With taxpayers' money flowing into their vaults, banks are going ahead with paying dividends to shareholders, giving bonuses to top executives and acquiring competitors. Lawmakers are asking why banks with the money to do those things need taxpayer-funded help.
Lazear said the government is keeping close tabs on the way banks use bailout dollars to "make sure that there are not abuses" and to ensure the law's requirements are met.
The rescue legislation included some limits on executive compensation, considered weak by many. And while it does not allow institutions receiving the money to increase dividends, it does not prevent them from paying those dividends. Critics note that European banks that accept public investments have been required to suspend dividend payments.
Lazear said the bailout law does require banks to pay "quite significant dividends" to the government — 5 percent quarterly, going up to 9 percent after three years. Bush officials contend this is powerful incentive for banks to start lending again, so they can earn the kind of money necessary to make a profit on top of those payments.
"That's almost like a gun at their heads, so that they know that they have to start making money to be able to do that," White House press secretary Dana Perino said.
The White House also painted the dividend issue in populist terms. "Not only rich people get dividend payments," Perino said. "A lot of people could suffer if they don't have dividend payments." Pension funds and mutual funds, for example, invest in banks.
Perino also tried to dispel talk that the administration is close to announcing a new plan to avert foreclosure for possibly millions of struggling homeowners. She suggested that supporters of that approach were using the media to float their idea but that several options remain on the table with no decision or announcement imminent.
© 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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 | Bipartisan heat builds over use of bailout funds | Associated Press | Wed Oct 29 | 1 |
| Frank angry at banks over bailout plans | Associated Press | Fri Oct 31 | 2 |
| NY attorney general asks banks for bonus info | Associated Press | Fri Oct 24 | 5 |
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{"commentId":3786802,"authorDomain":"blueboy"}
Bailout the rich and ignore the poor, because we're uneducated liberals.
{"commentId":3786802,"threadId":"404200","contentId":"2056076","authorDomain":"blueboy"}
- 4 votes
#1 - Thu Oct 30, 2008 1:55 PM EDT{"commentId":3787504,"authorDomain":"PeteZaHutt"}
The last great swindle and fleecing of America by the Bush/Cheney thugs.
{"commentId":3787504,"threadId":"404200","contentId":"2056076","authorDomain":"PeteZaHutt"}
- 4 votes
#2 - Thu Oct 30, 2008 2:28 PM EDT{"commentId":3812066,"authorDomain":"biggerthebetter"}
How much do you think bush and cheney are getting in kickbacks?
{"commentId":3812066,"threadId":"404200","contentId":"2056076","authorDomain":"biggerthebetter"}
- 1 vote
{"commentId":3787535,"authorDomain":"cyan412000"}
lol guess again the fear card was played by bush...we ponied up 700 billion based on fear fear fear..only to have it go to banks that are not doing what the plan that was sold to the american people.
do not hear a word out of paulson do we on this....after all they made it seem like he FORCED them to take it...my ass
{"commentId":3787535,"threadId":"404200","contentId":"2056076","authorDomain":"cyan412000"}
- 4 votes
#3 - Thu Oct 30, 2008 2:30 PM EDT{"commentId":3787692,"authorDomain":"iliketuandapril"}
Not questioning the effort. But it does seem reflective of Republican economics in their expecting the 'trickle-down' to actually trickle down. So far? The bail-out money is definitely not trickling down from what we see at the bottom. It is languishing at the top and being hoarded, invested or spent.
The reason bailing out was necessary? They didn't pay attention or react *soon enough*. All official reports were that our economy was 'healthy'; a bluff at best. In fact, we at the bottom were already faced with the new awareness of choppy seas ahead with strong storm clouds looming. And, the earlier-distributed economic stimulus program was less than effective. Fact is? Our taxes have already been skyrocketing; combined with an existing record deficit. Now, we have merely adversely affected the 'global' economy in our shenanigans of making some at the top even more wealthy.
'Bail-out'. At this level of bailing-out? ($250 bill to begin?--if I am not mistaken) It does kind of smack of this word: 'Socialism'! America sure doesn't seem to appear to be much of a 'democracy' at all anymore.
{"commentId":3787692,"threadId":"404200","contentId":"2056076","authorDomain":"iliketuandapril"}
- 4 votes
#4 - Thu Oct 30, 2008 2:38 PM EDT{"commentId":3788066,"authorDomain":"Prophet"}
Trickle down economics have never worked and will never work.
Both Alan Greenspan and Ben Bernanke, the former and current chairman of the Federal Reserve Bank, have warned about the destabilizing effects of too much concentration of wealth and income on our economy and the related social consequences. Simply put, trickle down economics doesn’t work, but trickle up economics is alive and well.
{"commentId":3788066,"threadId":"404200","contentId":"2056076","authorDomain":"Prophet"}
- 2 votes
{"commentId":3788228,"authorDomain":"widemoto"}
I'm not here to defend Wall Street," Perino said. "I'm not here to defend their pay practices. But this is the law as it was set out, that was passed by Congress."
I read that to say, this is the way it is and there's not much you can do about as it is the law passed by Congress, end of story. Hmmmmm, a detection of unbridled arrogance and condescending attitude.
I guess we'll just have to swallow the pill and shut our mouths without a further word about it.
{"commentId":3788228,"threadId":"404200","contentId":"2056076","authorDomain":"widemoto"}
- 1 vote
#5 - Thu Oct 30, 2008 3:02 PM EDT{"commentId":3810665,"authorDomain":"roadlesstraveled"}
but we can vote!
revolution?
{"commentId":3810665,"threadId":"404200","contentId":"2056076","authorDomain":"roadlesstraveled"}
- 2 votes
{"commentId":3791282,"authorDomain":"katiekay-1"}
This really ticks me off. First the money isn't being used for what they told us and now still some higher ups are going to get even richer off of us. And where's this transparency they were talking about? Obama will change all this folks, don't worry. He will set America on the right track, instead of down the road to misery and dispair.
{"commentId":3791282,"threadId":"404200","contentId":"2056076","authorDomain":"katiekay-1"}
- 1 vote
#6 - Thu Oct 30, 2008 5:37 PM EDT{"commentId":3793299,"authorDomain":"lstinson"}
katiekay,
Sorry to burst your bubble but Obama was in on the deal also. There is not a politican in this land that can straighten out this mess. So don't put your faith in Obama, better put it in God and ask Him to take care of it. That's our only Hope for change.
{"commentId":3793299,"threadId":"404200","contentId":"2056076","authorDomain":"lstinson"}
{"commentId":3793662,"authorDomain":"blueboy"}
If there is a God, it's not his mess to cleanup.
Devils and Gods now that's an idea but if we believe that its they who decide
that's the ultimate detractor of crimes 'cause Devils and Gods, they are You and I.
-Tori Amos
{"commentId":3793662,"threadId":"404200","contentId":"2056076","authorDomain":"blueboy"}
{"commentId":3810635,"authorDomain":"roadlesstraveled"}
Rep. Barney Frank, D-Mass., said such uses of the funds are a "violation of the terms of the act."
Ya think!
As if the economic bailout by U.S. taxpayers isn't enough to make you sick to your stomach, new information has come to light that several banks are planning to pay billions of dollars in year-end bonuses from the bailout funds they received. Investigations are beginning into the nine banks that took in the first $125 billion -- the same $125 billion that was supposed to be used to unclog the credit system which was preventing banks from providing much needed funds for individuals and businesses.-Posted Oct 31 2008, 07:30 AM by Andrew Horowitz
This is socialism for the rich!...so I guess that makes it ok.
Free Market, what a joke! I see a revolution coming on!
I urge everyone to read this article: $50 billion of bailout going to employee bonuses
Here is their rationale for using that money: It is reported that the financial industry pays base salaries in the range of $80,000 to $600,000 and apparently that is simply not enough to keep some of the best and brightest working to keep their companies profitable. It seems that if they were paid only this meager amount, the company would risk mass defections. That would be a real problem...or would it?
I guess in this country we think the best and brightest are those who sink our country into the ground, and reward them handsomely. I can think of some very good people who would do a better job, so let those "best and brightest" walk, and enjoy trying to go find a job with that resume....Hello my name is CEO and I just took part in ruining the country...when do I start?
These people need to be in Jail! Including our congressmen and woman that think Americans should pay these bonuses.
{"commentId":3810635,"threadId":"404200","contentId":"2056076","authorDomain":"roadlesstraveled"}
- 1 vote
#7 - Fri Oct 31, 2008 6:21 PM EDT{"canLink":false,"threadId":"404200","isPrivate":false}
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