The thing is, the banks have paid. The entities that haven't are the ones that aren't going to be taxed- GMAC, GM, Chrysler, Fannie, Freddie, etc.
Not sure what 1.2 trillion you are referring to, but the loans made out to the big banks (Goldman Sachs and company) have been repaid (with interest.) It was in the news a bit back- basically every time each bank paid some money back. Of course it wasn't a huge story as the media (and some populist movements) like to vilify those who are successful instead.
Big banks fail. large business cut back and people lose their jobs. Small businesses that banked at the big banks and/or got supplies from the big businesses fail. Small banks fail. People don't have money to spend so the big businesses fail. The state gov'ts, no longer having a tax base fail. The Fed fails. No more USA as states cut their loses and leave.
The liquid assets would be sold off though to other companies. That is the beauty of it- the good assets would live on. Also, when you say that large businesses will cut back if big banks fail I am assuming you are justifying that would be due to a credit shortage? Well, even with the bailouts we had a credit crunch- it is still extremely hard to get credit. That part of the scenario would remain similar, except the situation might even be better had we let them fail because the companies that bought the good assets would obviously have been in good financial situation (at least relatively) if they bought up the assets, meaning they would also be more likely to lend, especially when those cheap bankruptcy assets appreciated.
That was the stimulus package (and it was more around ~800 billion after some "cuts") and that money did not go to the banks. That was more for government spending projects, etc. The money that went to the banks, was from TARP, which was passed during Bush's time in office after the big banks started to fail.
Well, technically, the bailouts were not supposed to be just giveaways- they were essentially loans in that the banks were expected to pay them back.
The Obama administration claims it is to make up for unpaid money on bailouts. What doesn't make sense is that they are taxing the group of companies who have already paid back their bailout money in order to compensate for those companies who have not paid it back.
Not exactly, but the administration knows that the growing deficit is hurting them and they need to find ways to try to reduce it. As for why some companies have paid it back and others haven't- quite simple; the ones that have paid it back are generally the same ones which have bounced back and started to make money again.
