The whole concept of the bailout is reviled by Republicans, Democrats, and voters in general. Politicians spit out the word with the contempt that is usually reserved for something akin to pedophilia. Yet, contrary to general public opinion the Bailout was not only necessary, but good for the country. The alternative, a collapse of the US financial system would have been worse. Rather than wasted billions, it actually returned billions to the Treasury. Likewise, the Stimulus created much needed investment in American infrastructure and American skills. In this month’s installment of The-Common-Sense-Party.org's blog, we debunk five myths about the Bailout.

Myth 1: We would have been better off if we let Wall Street collapse.

There are those that claim it is perfectly natural to allow firms to fail on their own. After all, for thousands of years before man arrived on earth forest fires would wipe out huge acreages of old growth trees, clearing the way for a new crop of trees to repopulate the forests. With the failure of the US and perhaps global financial system, a new system would be born, perhaps this time stronger and better than the old one. The problem with this theory is twofold: first, with the destruction of the American economy would come decades of misery, as we saw in the first Great Depression. Secondly, there is no guarantee that America would bounce back. Perhaps it would only hasten the fall of American global dominance. We have seen New Orleans, virtually wiped out by Hurricane Katrina has only returned to be a shell of its former self. Detroit, hit hard by an economic shift away from industrials and decline of our automakers has seen people leave and not return. America, being the most embroiled in its dependence on financial services, might have simple been eclipsed by Brazil, Russia, India and China. As Fortune writes in its July 25th, 2011 article titled The Bailout:

Had Goldman, Morgan Stanley, GE Capital, AIG, and several giant European banks not gotten bailouts and instead failed, even capital-rich J.P. Morgan Chase would have gone under, because it wouldn't have been able to collect what these and other players owed it. There would have been trillions in losses, worldwide panic, missed payrolls, and quite likely the onset of Great Depression II. That's why we needed a bailout. And why we got it.

It is likely that if our country financial system had totally collapsed, there would have been more change. Following the Great Depression we had monumental change including FDIC, Glass-Stiegel, and the SEC. Following the housing bubble meltdown, we had the Dodd-Frank bill, which is already under assault on many fronts by Republicans and the banking industry. The one downside is that much more drastic regulation is likely needed, but hasn’t occurred, which leaves our financial system open to a repeat with a different bubble.

Myth 2: The Bailout cost us money.

A recent analysis by Fortune Magazine, published in the July 25, 2011 edition of the magazine, shows that US taxpayers are going to come out ahead by $40 billion to $100 billion. This includes the entire bailout, not just the 3% that is the even more reviled Troubled Asset Relief Program (TARP). A good portion of the bailout was Uncle Sam guaranteeing certain obligations with a maximum exposure of $14 trillion, which did as it was intended - it calmed the markets and prevented Uncle Sam from having to make good on those guarantees. Although the bailout clamed choppy waters, they did not cost taxpayer money.

Myth 3: Quantitative Easing (QE I and QE II) did nothing.

Actually, Fortune's analysis shows that the Fed added an extra $102 billion to the Treasury in the four years (2007 through 2010) of Quantitative Easing. QE I was largely the Fed buying troubled assets from financial institutions. It turns out these assets, which were being sold in great quantity at low prices were not as troubled as first assumed. This is contrary to the current GOP narrative that includes getting rid of the Fed. Macro-economic stability does, contrary to the Austrian School of economics, seem to work.

Myth 4: The government spent a huge amount of money bailing out irresponsible home owners that got in over their head.

The idea that someone signs a contract with a bank, doesn't take the personal responsibility to understand their obligations, and then gets someone to bail them out is abhorrent. Ingrained in the American way, everyone plays by the same rules and people will succeed or fail based on their own merits. In this theory, there are average Americans who have played by the rules and bought a house they could afford and have kept up with their debts, while others who are less responsible get to keep their large houses because the rules are being changed. In fact, there were only three programs to assist with keeping people in their houses.

The first is the Emergency Homeowners Loan Program (EHLP). This is the one that is closest to the accusation that the rules are being changed. Qualified unemployed homeowners can receive a loan of up to $50,000 over a two year period to assist with mortgage payments. After five years, if the homeowner maintains ownership of the house, the loan is forgiven. There are many stipulations with this program including a maximum of $1 billion that can be spent. This will help approximately 30,000 homeowners, which in the context of the 3 million to 5 million homeowners that will lose their house (some 4 million are in trouble on their mortgage), is a drop in the bucket.

The second program is the Home Affordable Modification Program (HAMP). It uses TARP funds to pay lenders (banks) to modify mortgages. It was hoped to help some 4 million homeowners, but has helped only 600,000 homeowners at a cost of $1.42 billion. The bottleneck with this program has been the banks. There are three types of delinquent homeowners: those that can afford to pay, but don't; those that are temporarily in economic trouble, but could pay with help; and those that will never be able to afford their house. Banks don't want to renegotiate contracts for the first group, those that should be helped in the second group, and it makes sense to foreclose on those in the last group, since delaying the inevitable is not in anyone's interest. Foreclosures cost the bank tens of thousands of dollars, between the costs of foreclosure and lower home sale prices; hence it is in everyone's best interest to renegotiate mortgages with this middle group. The problem banks have is that they are overwhelmed and can't distinguish between those with real need and those that should be denied or foreclosed.

The final program is the Home Affordable Refinance Program (HARP) which allows people with Freddie Mac and Fannie Mae mortgages with little or no equity to refinance their house up to 25% more than their home is worth. Homeowners, who have properties that are underwater where they owe more than the house is worth, are unable to refinance their mortgage. The hope is to allow this group to be able to refinance their mortgage, to keep them in their houses. Because we won't know who will default, there is no estimate of the final cost of this program. This program has helped 800,000 homeowners refinance their mortgage.

Ultimately, these programs have not come close to helping the millions who have been foreclosed on, or will be foreclosed. All three of these programs are coming to the end. And these programs have only cost several billions dollars - although this sounds like a lot of money, it is a fraction of the government's budget of $2,300 billion.

Myth 5: The American Recovery and Reinvestment Act of 2009 was a huge waste and didn’t create jobs and wasted money.

Although certain projects and cases of fraud have been used to help propagate this myth, most dollars were used correctly. Of the $787 billion, $237 billion were for tax rebates for individuals ($116 billion via a payroll tax credit of $400 or $800 per couple). Remaining tax rebates included help for individuals with education credits and renewable energy credits. Of the $550 billion spent, $100 billion was spent on education, $105 billion on infrastructure improvements, $27 billion on energy efficiency, $7 billion on scientific research, all of which support and improve long term American competitiveness. Ironically, a nation in decline is like a company in decline - a company begins losing money, so it cuts R&D, and therefore its products lose competitiveness, which causes falling market share and downward spiral continues. As our infrastructure declines and our workforce fails to upgrade its skills, the country is unable to compete with other countries as the place to base their business. We slash spending, including investment in infrastructure and our work force to match the declining tax revenues, and the downward cycle begins.

We're confident that with the passage of time, distance will put the true value of the Bailout in perspective. Future historians will look back and be surprised that the Bailout, which saved America, was so reviled. While we wait for this historical turnaround, we'll attempt to set the record straight.