I think there is some confusion because I have not clearly distinguished the stimulus spending from the bail out spending. That is partly because the terminilogy is different in different countries and I have not properly outlined them
In the US the stimulus spending is new money released into the economy in the form of tax rebates, infrastructure spending and the like. It is keynesian in conception so far as I can tell and it was done under a piece of Legislation called the American Recovery and Reinvestment Act of 2009. The cost seems to have been about $780 billion. The flaw in it so far as I can see is that much of the money was given in the form of tax relief to individuals and companies. That has the effect of reducing government revenue and so tends to increase the deficit and the debt. There is no direct guarantee that the money will be spent to increase production, and therefore wages/profits which will give rise to tax income or increased GDP in the medium term. Direct investment in infrastructure etc does not suffer from this problem. Economists split pretty much as one would expect in commenting on it, I think.
The bail out money is a separate amount of money which was passed directly to those institutions, and indeed there has been very recent information showing that a great deal of money was not an open part of those arrangements, but was in fact passed over secretly.
http://www.bloomberg.com/news/2011-11-28/s...-in-income.htmlThe money was also new money and the bail out was done under the Troubled Asset Relief Programme. It was funded at around $700 billion and the aim was to purchase falling bank assets especially mortgage backed securities. The idea was to increase liquidity in the bankings system by buying up risky mortgages for cash. The "asset" would pass to the government and the bank would get the money. It was argued that many of these mortgages would continue to be paid so the government would get the money back either through the repayments as the banks would otherwise do: or by selling the asset. Since the whole reason for doing it was that the mortgages were not backed by properly priced assets and there was a strong likelihood of default by the debtors that seems a bit thin to me: but that is what they said. It is obvious that the price of those assets was a matter of dispute. It was suggested that some should be sold on the open market to determine the price the government should pay: but I do not think that happened. Whether or no, it took worthless assets out of the hands of the private sector and onto the public purse. The legislation also provided that the government pay interest on the reserves the banks make to the central bank and that meant the banks could continue to enjoy high interest with no risk to the capital so deposited. The banks have choice about how much to place on reserve, curiously. But a deposit with the government is now a loan by any other name; a liability of the public which increased both debt and deficit. So the fed got toxic assets for a high price; and more debt and interest to pay as well. I gather the banks liked this idea. And this was intended to solve what was characterised as a credit shortfall due to illiquidity. Go figure. As a wee bonus the interest paid on reserves was higher than that attached to treasury bonds: so the government couldn't readily borrow on the market any more than anybody else.
As in this country the banks, with no strings attached to what they would do with the bail out money, did not use it to extend credit to business: instead they paid off some of their own debt or to acquire other businesses, as before. So the aim to save the economy by ensuring there was cash to invest in productive industry and jobs did not work in the US any more than it did here
