A Discussion Question

The NY Times reports that the new president is concerned about how banks are using TARP funds:

[President Obama] criticized companies that have used federal money they received under the financial bailout for low priority or wasteful purposes and promised not to let that happen. He cited “reports that we’ve seen over the last couple of days about companies that have received taxpayer assistance, then going out and renovating bathrooms or offices, or in other ways not managing those dollars appropriately.”

A prominent economist emails me the following:

Discussion question.

Scenario 1. AmeriBank of Holland, Ohio, receives TARP funds and uses $20,000 to hire Joe the Plumber to remodel a bathroom in one of its banks.

Scenario 2. AmeriBank of Holland, Ohio, receives TARP funds and loans $20,000 to Bob the Baker to remodel a bathroom in his house.

Explain the difference in macroeconomic stimulus in these two scenarios.