Money and Main Street
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Save the banks by giving consumers cash?
Save the banks by giving consumers cash?
Timothy Korytko, 30, is a resident physician in radiation oncology at the Ohio State University James Comprehensive Cancer Center.
Question: "Economists say giving consumers money does not stimulate the economy. But if everyone took their $10,000 and put it in the bank, wouldn't that, in effect, bail out the banks by giving them money that they could loan to businesses, thus stimulating the economy?" - Timothy P Korytko, Columbus, Ohio

Expert: Garett Jones, associate professor, George Mason University

Answer: I've been opposed to the bank bailout since day one. But remember, this is a loan to the banks, not a handout.

Even though the bailout is a bad idea, the goal of the bailout is still good: To make sure that the nation has some large banks that can connect savers with borrowers. Big banks can arrange big deals that small banks just can't. Big banks don't always make the right decisions, but it's hard to imagine that squeezing 20 small banks into a room with 3M is the way to fund a new R&D project.

During his career as an economics professor, Fed Chairman Ben Bernanke convinced most economists that one of the worst side-effects of the Great Depression was the destruction of the banking sector. His research reminded us that without a healthy banking sector, people have to rely on friends and neighbors and their own savings to grow a business. When a small business owner has a good idea, friends and neighbors probably don't have the cash to "scale up" her garage-based business. Without the big banks, we probably face a poorer, less innovative future.

Also, keep in mind that, at least on paper, the TARP money isn't a gift to these banks: TARP money bought actual shares in these banks, shares that pay a 5% dividend every year. Congress can always decide that the banks can keep the money--Congress can decide whatever it wants, for better or worse--but as of today the TARP money is less like a gift card and more like a loan.

So if Congress just lent every American taxpayer $10,000, demanding $500 per year in interest, it's possible that this would solve some of our nation's economic problems, but it wouldn't really strengthen our crippled banking sector.

That said, if you really want a TARP-style loan, you may be able to get one. The federal government actually offers TARP-style terms through lots of government programs: Student loans, small business administration loans, FHA housing loans, etc. Lots of money, low interest rates, fairly flexible repayment.

So if you really want to get a TARP-style bailout--complete with government bureaucrats nagging you about repayment--you can head right out and get a federal loan yourself. The person on the phone harassing you to make your monthly payment will be a call center employee, not Congressman Barney Frank, but at least you'll know how Citibank feels these days.

NEXT: Where does the money come from?
Last updated April 14 2009: 11:56 AM ET
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