The Opportunity Cost of Bank Welfare

Arianna Huffington has a great op-ed detailing the massive cost of the banking sector bailout in relation to the myriad financial crises facing almost every state. Huffington notes, in part:

Reading about the huge budget cuts almost every state in the country is being forced to make quickly puts the $4.7 trillion we have pumped into the financial sector into perspective, and leaves us pondering the opportunity cost -- what else we could have done with that money. Consider: America's states are facing a projected cumulative budget gap of $166 billion for fiscal 2010. That's a massive number. But when you remember that we spent $180 billion to bail out AIG, you realize that that alone would be more than enough to close the 2010 budget gap in every state in the union. Instead, that money has gone to the banks with no strings attached and no accompanying reform of the system. So all across the country the fiscal ax is falling. The devastation is in the details.

She details the states' problems in greater detail in the larger piece and it is sobering. To add weight to her points, I'll note that when Fed Chairman Ben Bernanke was recently asked what foreign central banks did with $500 billion that he gave them, he responded that he "didn't know." That is half a trillion dollars, boys and girls, and my wife and I have better records tracking our spending at the supermarket.

24 July 2009