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January 18, 2009

Bailed out banks: Screw you

The ostensible purpose of the bank bailout was to enable banks to start lending again, but the banks are taking taxpayers' money and thumbing their noses at the politicians who gave it to them:

At the Palm Beach Ritz-Carlton last November, John C. Hope III, the chairman of Whitney National Bank in New Orleans, stood before a ballroom full of Wall Street analysts and explained how his bank intended to use its $300 million in federal bailout money.

“Make more loans?” Mr. Hope said. “We’re not going to change our business model or our credit policies to accommodate the needs of the public sector as they see it to have us make more loans.” [NYT]

What are bankers doing with out money instead of lending it to people and businesses to keep the economy going?

Most of the banks that received the money are far smaller than behemoths like Citigroup or Bank of America. A review of investor presentations and conference calls by executives of some two dozen banks around the country found that few cited lending as a priority. An overwhelming majority saw the bailout program as a no-strings-attached windfall that could be used to pay down debt, acquire other businesses or invest for the future. [NYT]

It's absolutely ridiculous that banks aren't required to make more loans as a condition of accepting bailout money.

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I thought the ostensible purpose of the bailout was, first of all, to prevent bank failures. Increasing lending was another; this more or less worked, in the sense that the TED spread is down from September, when the federal government could borrow at 0.03% interest and the private sector at 7%.

It'd be a lot more ominous if businesses still had to pay exorbitant rates to get loans, but my understanding is that they don't, whether by higher supply of loans or lower demand.

The sentiment here is good but banks are not lending because of a couple of very good reasons. Consumers have stopped borrowing because incomes are dropping and they have too much debt already. It isn't that banks are refusing to lend, which they might, but the fact that people don't want more debt. This is a very good thing. Then too business is not borrowing because they see the economy slowing and don't want to borrow to invest. In this case more businesses may be trying to borrow but getting refused because of the risk but is that bad. You want banks to make more risky loans.

Our problem is too much debt. A huge mountain of debt unmatched in human history by several orders of magnitude. In the end more debt will not save us.

The crime here is that the dead criminals now have the money to buy up the good assets. Bailing out the biggest banks is the crime, not that they are not lending.

It is crucial that you get your mind around the possibility that this is the end of an economic and really historic cycle that is dated in centuries.

http://theautomaticearth.blogspot.com/

Alon Levy -

Do you have a pre-bailout statistic and a recent statistic we can compare?

Eric: it's on Paul Krugman's blog, I believe. I don't remember the exact date of the post, unfortunately.

Rapier: you're describing a recession perfectly. Why is that a good thing?

Rapier, I agree with you. The problem was bailing out the banks in the first place. TARP is such a boondoggle because it was evident from the beginning that the banks would have better things to do with their money than lend it out, given the sorry state of the would-be borrowing public.

A lot of TARP money was actually steered towards the healthier banks because they were thought to be in a better position to start making loans again.

If the government really understood the economic failure of the debt ridden society, they would understand that credit card debt is the main reason for the debt load of American citizens. Some of that credit card debt has to be blamed on the credit card companies themselves. Jacking up rates, changing due dates, and excessive fees when a person has a mishap, whether it is from job loss or severe illness. It is not illegal for them to do this but is very unethical. Of course some people find it easy to spend foolishly, while others found it necessary just to survive. The Congress has finally reined in the credit card companies but not until the year 2010. How ridiculous!

Isn't that the most ridiculous thing? Imagine giving them billions of dollars in bailout money and now that has banished into thin air. I was concerned about the lack of the monitoring system when they handed that money out and now they don't even know what happened to it. I like it better what they did to the auto industry because the bailout money there is a loan. They should make all bailout money a loan that should be paid back to the US tax payers, don't you think? And whoever released the money that banished should be investigated.

Evelyn Guzman
Debt Challenger

Want banks to lend?
Look at the stats:
median US income-50k
median US home price-250K
monthly budget family of four:
take home pay- 3300
mortgage (based on 200k assuming 20 percent down on 250 k)- 1199
real estate taxes- 200
new car loan- 425
elec- 100
heat- 100
health ins- 200
car ins- 100
food- 800 (less than 10 dollars per meal)
gas- 150

Our median family is now at 3174 dollars without credit cards, without clothing, dental, car repairs, out of pocket medical expenses, home equity loans, etc...

So, where did the ability to consume more things come from? A phony increase in housing and the use of credit cards led the way. There was no wealth there to spend. It was predicated upon people making more money and being able to afford more expensive homes. That did not happen, as you know.

The reality is that the median US household is broke and has been broke for a long time. While wealth zoomed for the top 10 percent, the rest of us flat-lined. A bank, if run properly, would be insane to lend money to the average US household. They would never, most likely, get their money back.

The simple point that everyone seems to miss is that there is plenty of money in the economy- it is just concentrated in too few hands. With the rise of foreclosures and bankruptcies, isn't it obvious that the 90 percent of us who own 30 percent of America's wealth are tapped out? Even if we create a dollar's worth of new wealth, the way our economy is structured, 70 cents of that dollar will go to 10 percent of the population. Hence, the 90 percent of us share 30 cents- roughly 1/3 of a penny each goes to the rest of us. It would seem to me that it would take a staggering amount of money to be printed to have any effect on the 90 percent of us. Meanwhile the other 10 percent would get even more insanely wealthy if we printed gobs of money.

I hate to say it: but until we figure out a way to share the wealth, no amount of printing money, rebate checks, deflation, dollar an hour raises, etc. will make a spit of difference.

They should have bailed out the people in foreclosure. That would have helped the banks indirectly, helped ordinary Americans, and stimulated the economy.

Caliban, the median family of four makes way more than 50k. 50k is for the median household, which has 2-3 people.

And cars are a luxury.

How it is that WE are bailing out ~ SAVING the banks, yet the banks still refuse to HELP the borrower save their home. Now that the Hope for Homeowners is live, they won't even consider this as an option ~ We were told they have done everything (the bank) could do to help us. Help? ~ all or nothing is the only option given.

I have read and reread all those that say if help is given to those losing their homes it is because they are LOSERS! (as we all are right now!!!!) However, bad things happen to good people and because you cannot pay your mortgage does not mean you were over your head in debt, it simply means you lost your job, you had a catastrophic event (med), etc.

So tell me, why is it we are saving the banks and the auto industry with bailouts but bailouts for homeowners is discretionary by the bank. This just makes no sense and it becomes very personal!

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