More Aid To Financial System Likely Needed
This week, both Federal Reserve Chairman Ben Bernanke and Treasury Secretary Timothy Geithner expressed similar sentiments before Congress in separate testimonies, that the banking system will likely need more than the original $700 billion committed to it last fall. This year’s proposed budget already has a deficit of close to $2 trillion and the deficits for 2010 and 2011 will probably be near a trillion as well.
The nation’s debt ratio to Gross Domestic Product will rise to levels not seen since the massive deficits incurred following World War II. Until the Treasury finishes it’s evaluation of the banking system with it’s so called “stress” tests we probably will not know how much more money it will seek from Congress.
I wonder if the government now regrets not intervening in the Lehman Brothers collapse, which intensified the current financial crisis. It is almost to the point where it seems that they are almost willing to spend as much as it takes to keep a similar situation from happening again.
For instance, the original terms to AIG’s initial bailout contained many provisions that it made it likely that taxpayers would lose little in the breakup of the company. In the months following, AIG’s bailout has been revised three times now and many critics doubt the government will get all their money back once AIG finishes selling off it’s assets.
As for the banking system, many experts are say it will take at least another trillion and possibly more to free up enough toxic assets for banks to start lending again. As weary as the government must be by now spending all this money, they have to remain committed to stabilize the banking system or we could be in for a long road to recovery.
