To say that Americans weren't thrilled by the original government bailout of American financial institutions is an understatement. But if they were upset with that plan, imagine how furious they’re going to be when they start to understand that the Obama administration has begun bailing out banks from Japan, Canada and Europe.
There are two ways that the U.S. is bailing out these countries' banks. First, the Federal Reserve is providing banks around the world with loans at below market interest rates. It mirrors what the Federal Reserve did last year when it gave American banks loans at near zero interest. The banks then turned around and used these government loans to lend money back to the Federal government by buying U.S. Treasury bonds, on which the banks received higher interest rates. The bottom line is obvious: it is just an outright gift to foreign banks.
With the exception of $30 billion to Canadian banks, the Federal Reserve won't reveal how much of these subsidized loans they are giving to foreign banks. And why we would want to subsidize Canadian banks is a mystery in the first place. Compared to the U.S. economy, the Canadian economy has done fairly well during the global economic crisis. Meanwhile, here are home, since Obama became president, U.S. unemployment has risen by 2.2 percentage points from 7.7 to 9.9 percent. Canada's has only gone up by about a third as much, rising by 0.8 percentage points from 7.3 to 8.1 percent.
A second part of the bailout comes from a $54 billion International Monetary Fund loan to Greece and other European countries. Again, we don't know exactly how much of this loan the U.S. will be responsible for, but that number is likely to be at least $10 billion since we typically contribute 17 percent of the IMF budget.
Why the U.S. should want to bailout Greece is no more obvious than why we were supposed to bailout AIG, Goldman Sachs, or General Motors. After all, the Greek government possesses lots of valuable assets it can sell to pay its debts -- for example, it owns land as well as stock in many companies. Indeed, the Greek government is sitting on a range of odd investments: casinos, banks, jumbo jets, and even a lucrative sports-betting organization. The Greeks may not want to sell those assets, but why should American taxpayers subsidize Greek nationalistic pride? To top it off, Greek government truly spends too much -- 44 percent of GDP. Why should American taxpayers feel sorry for a country that refuses to cut its government spending?
Indeed, the bailout not only rewards Greece for its profligate spending it also encourages other countries to overspend. Countries see that American taxpayers will ride to the rescue and subsidize their overspending. The problems just get pushed down the road. If our loans are not repaid, they will simply be rolled over.
Even if politicians haven't gotten the message, economists as well as the general public have understood for a long time that bailouts are the wrong way to go. When Congress was about to pass our bailout bill in September 2008, 400 of the nation's top economists came out against it. Even a few months after the plan was adopted, Americans overwhelmingly opposed the bailout bill by a 56 to 20 percent margin. As time has passed, even more Americans have come to understand that the original panicked bailout push was a mistake.
American politicians had better start listening to the electorate or else they will suffer the consequences. And they could start by taking a cue from Germany. Under pressure from President Obama, German Chancellor Angela Merkel put up $156 billion into the bailout plan, risking its own AAA bond rating. And German voters showed their unhappiness on Sunday, stripping Merkel of her party's majority in Germany's upper-house of parliament.
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John R. Lott, Jr. is a columnist for FoxNews.com. He is an economist and was formerly chief economist at the United States Sentencing Commission. Lott is also a leading expert on guns and op-eds on that issue are done in conjunction with the Crime Prevention Research Center. He is the author of nine books including "More Guns, Less Crime." His latest book is "The War on Guns: Arming Yourself Against Gun Control Lies (August 1, 2016). Follow him on Twitter@johnrlottjr.