The US Government bailout of banks left a lot to be desired. In the final analysis, the US Government rewarded excessive and dangerous risk taking by bailing out banks that deserved to be put out of business. It was not prepared to stand by and let the market do its work. Those bailouts did stink.
That's why we now have Federal Reserve chief Ben Bernanke saying he had to hold his nose when handing out the money. Bernanke made those comments in a series of meetings which will be aired this week in three installments on PBS' "The NewsHour with Jim Lehrer."
Still, Bernanke defended the bailouts, claiming he did it to avoid a "Second Great Depression". As he put it, some firms were simply to big to fail.
No doubt, the wisdom or otherwise of the bailouts will be debated for some time to come. And the problem is we still don't know whether the US is out of the woods yet.
US economists reckon the US economy is still set to decline when the second quarter economic growth figures come out this week. The good news, if you want to call it that, is that it will shrink less slowly. Economists say the US economy will slip 1.2% in the three months to June, compared to fourth quarter's 6.3% decline or the first-quarter's 5.5% drop. Furthermore, they predict growth will be back in positive territory in the third quarter.
Don't bet on it. US consumer confidence has fallen for the first time in five months, according to the Reuters/University of Michigan final index of consumer sentiment. That's on the back of rising unemployment and no movement in wages.
Let's be clear about one thing: this recession won't be over until people start spending again and they won't start spending again until they have more confidence.
Which suggests the US Government might be forced into a second bailout. Looks like Bernanke will be holding his nose again.
I wouldn’t discount the general increase in confidence over the last five months entirely. Despite the latest dip, people are starting to see the light at the end of the tunnel. I’m guessing (and it’s a BIG guess) that the third quarter will bring positive growth, as predicted. Especially as news reports focus more and more on recovery to fuel that confidence.