Monday, May 7, 2012

The Problem With Bailout "Repayment"


It’s time to apply the same rules from top to bottom: No bailouts, no handouts and no cop-outs. An America built to last insists on responsibility from everybody.
President Barack Obama, 2012 State of the Union Address


Don't worry, in quoting Obama, I am not praising him. Just being ironical.

The early months of the Greater Depression --and rest assured, we are still in it-- saw enormous bailout plans to many industries, such as banks, insurance companies, and automakers. Most of these plans involved either extending loans directly or buying stocks. Advocating such actions, bailout defenders say once these industries are back on their feet, they will be paying the loan back, with interest in the case of a loan or in dividend payments in the case of stock purchases. Therefore, there is no net loss to the taxpayer. Don’t worry and be happy and hand in that clunker for cash.

Let's just say that all firms bailed out in this economic malaise actually did pay back the entirety of their State aid, plus interest/dividends. Did the taxpayer win?

The story link above to states:

In addition to returning the $68 billion, the 10 banks paid the government $1.8 billion in dividends on the preferred shares of stock the government owned. That translates to an annualized rate of return of about 4.64 percent on the $68 billion. In all, the government has received $4.5 billion from all bailout recipients.
Unless you have been sleeping for the past 5 years, you should be well aware that our [non-inclusive and lowballed] national debt has exploded. How can the taxpayer actually benefit from this evil corporatocratic scenario? They can’t.

But guess who can? Yup, corporate interests. Let's take a quick look at a particularly insidious program implemented by the US Federal Reserve in March 2008 as the world entered the slump throughout the next few months: The Primary Dealer Credit Facility (PDFC).

The Primary Dealers are 21 financial institutions authorized to work directly with the Federal Reserve and US Treasury in purchasing/selling Treasury Bonds to introduce into and trade in the secondary market i.e., as primary dealers (Though the TreasuryDirect program allows individual buyers to manage their comparatively measly accounts).

Under the guise of keeping the financial system "going," the PDFC program allowed these financial institutions to borrow from the Federal Reseve at rates lower than 0.5%. Then, buying from the US Treasury, they used those cheaply borrowed funds to purchase Treasury Bonds yielding close to 2%. Thus, their credit standing with the Federal Reserve would remain strong, always making payments on time, while maintaining a guaranteed stream of revenue from the interest rate spread. A stream that flows directly from the pockets of taxpayers to the US Treasury to the interest payments it makes on its bonds. Fortunately, this patently fraudulent program was ended in February 2010.

Quickly note, the $4.5 billion in interest payments from the banks to the US Treasury is from 2009, two years before the Treasury interest payment I link to below. But the numbers are too perfect not to use together, and do you really think things have gotten better...?

The Treasury must first borrow from others to even lend to specific industries (note that the bailout of insurance giant AIG came first directly from the Federal Reserve, and then from the Treasury). Indeed, even to operate at present status requires daily borrowing from foreign States and the private sector. 

Again, if the State is itself irreparably indebted and is literally borrowing to lend, how can taxpayers benefit? 2011’s interest payment to foreign governments and private investors was, as the Treasury itself confirms, ***
$450 billion***. Notice that there is ***no*** decimal point between “4” and “5”. The entirety of the bank bailout repayment could have gone to interest payments to Treasury bond investors and there would still be $445.5 billion due to them.

The purpose of these lending/spending programs is really ***not*** to keep the economy going and growing. Consider Cash for Clunkers. Sure, you get a cool new car and some cold, hard cash, but you also get a very uncool new ***loan***. How long can consumers who participated keep up with their payments? We will see…

These programs are financial favors from Big Government to Big Business. They keep the oligarchs comfortable while the rest of us wallow in the Depression they have created, and that they prolong.

$4.5 billion in interest payments is truly a lot of money. Indeed, that is why I think people are apathetic to this corporate whoredom.

But it is time to see the Big Picture of the Big Government/Big Business (and Big Labor) partnership for what it is, what it was, and what it always will be: Grand Theft Society.
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