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Ah, the sweet smell of your TARP money being used to batter the US economy senseless. First Bank of America gets $15 billion of TARP funds, and issues $9 billion worth of bonds guaranteed by the FDIC, then it spends $7 billion to buy a big stake in a Chinese bank.
Now Bank of America announces it’s laying off 30,000 to 35,000 workers. Why? In part because it took over Merrill Lynch and wants to "eliminate redundancies". Now, that’s entirely rational for Bank of America, as is spending $7 billion to buy up shares in a bank cheap (they got a below market price). But it’s not good for the US because that money was meant to be loaned to Americans and because layoffs make the economic situation worse (and those laid of workers will immediately cost the government a ton of money.)
Economic decisions which can be rational for individual companies or people can be very bad if everyone starts doing them. A large part of the government’s job at this time is to make sure that as few people are getting laid off as possible, that money loaned to banks is being loaned to businesses and consumers and so on.
To put it simply, such money should be contingent on not laying off workers. It should be contingent on actually using the money to lend. If you aren’t using the money to lend; if you are laying off workers, then you shouldn’t get the money. This is especially the case with purchases—if a company is in good enough shape to be doing acquisitions, it’s in good enough shape that it shouldn’t need Federal help.
In particular, to repeat again, banks need to not be allowed to buy up other financial firms. There’s perhaps little that can be done about them buying shares in a Chinese bank, but Merrill should not have been sold off for cents on the dime, and the same is true of most other firms. As long as banks know that there is a chance they’ll be able to buy up other banks at prices that won’t repeat again for 70 years or so, they’re going to horde cash, rather than lending it. It needs to be made clear that any financial firms going bankrupt will be run by the FDIC and will not be available for purchase for some time.
Over $8 trillion now has been used in a so far unsuccessful attempt to stabilize the financial sector. The reason it has failed is that the interventions have not had strong rules attached to them about what must be done with the money given. This is exactly opposite to how government money should be used. The public has not been coughing up all this cash for the good of banks and so they can keep paying bonuses and buying each other up, it has been coughing that money up in the understanding that the money is supposed to stop the crisis and fix the economy. If the money is not doing that, then it is being wasted; indeed, worse than being wasted, it is being stolen from ordinary taxpayers to enrich the already rich.
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It sure would be nice if we could get BOA to make some car loans and business loans I thought the GOP was pro business?
What would it take legally to stop the banks from buying each other?
OT BBC reports on $50bn US fraud, commented downstairs
BBC link:
http://news.bbc.co.uk/2/hi/business/7781086.stm
Paulson’s Bailout: ur doin it wrong
Are the banks holding on to cash because they expect to need the cash to cover more home, credit card, hedgefund losses?
Have they commented on the $700 billion dollar fraud?
Because BOA wants to destroy the economy to make Obama a one term president?
Used to be we had laws about monopolies – now we help monopolies plunder.
That graphic just slays me.
OT I wonder if there are CDSs to cover this default and jf we are going to have to pony up more.
http://english.aljazeera.net/n…..34739.html
Busting monopolies is a sign of reform.
Me too. The irony in it reminds me of the graphic you used on a diary, wherein Walmart was selling Jesus t-shirts for 6.66.
Good question maybe we could forgive the debt instead of selling their neighbors weapons.
That’s a good one. And I like this one by Clay Bennett
And deprive the military industrial complex a chance to make a healthy profit?
While the rest of us tax payers get stuck paying for the next war:)
Had we given every American household say 750,000. the cost would have been about the same, the householders could pay off their mortgages with enough left over to buy cars-thereby killing several birds with one stone. Unfortunately we don’t credit the psychology of capitalism which is I want mine and I also don’t want you to have anything. Pretty sick arrangement. Time to think in terms of alternatives.
Just think of the profits that will generate.
The article mentions this is the third Ecuadorian default in 14 years. The outside economist then declaims that this will prevent Ecuador from getting credit. And the other two defaults didn’t?
Want to know a little more on Wall Street and DC pols?
Chuck out the NYT today about our guy, Chuck. . .
http://www.nytimes.com/2008/12…..er.html?hp
But it probably generated some pretty good fees and besides it is all because of poor people ya know. *g*
Ya know, this whole financial crisis is all the fault of the poor. /s
I’ve told this story before, so skip it if you’ve seen it, but it’s timelessly appropriate.
My late husband was single-handedly responsible for Bolivia’s 1980s (or late 1970s) default. Around 1974, he noticed that Bolivia, a country that changed prez twice/year, had the same prez, Banzer, for 2 years, and guessed that the country might be credit worthy. He was at Kuhn Loeb iirc. He syndicated a $25 million load. The minute the tombstone was in the WSJ, all the other Wall ST bankers realized that Bolivia was credit worthy. Planeloads of them descended on the country, eventually lending it $4.2 billion, after which it went bust. It was all his fault.
For the arms makers and the tax payers get the bill. I’m sure Bush’s Dad at the Carlyle group will have the inside track on who will get the contracts though.
That’s our boy.
I’m so disgusted with Senator Mukasey, I can’t even read the article, but I did click on it, saw the photo & rushed to the bathroom to throw up.
No snark?
But, I’m thinking, if all your friends jumped off a cliff, would you too?
I have not been following closely; Britain and France have put multi billions of ₤ and € respectively into banks following US lead to about equal effect although proprietary positions were exacted and executive payments controlled. The same “educated” mindset prevails in both economic areas, the results should approximate each other at the end of the day. The economy in the euro-zone/sterling was in much better position to begin with wrt personal and national debt, employment, health care, and public transportation which will give a more favorable bottom line, as well as providing the necessary social safety net to weather the economic depression being engineered by the political governments.
Hot chocolate break is over. BBL
Book Salon upstairs with Jane hosting Ed Begley, Jr.
And,in return?, the ‘Chinese Construction Bank’ gets to set up a branch in NYC. I wonder whether that is a good thing or not? I hope they are willing to loan out trillions to those who need credit?
http://www.voanews.com/english…..-voa54.cfm
The Timesonline has this report being in The Sunday Times. It has some interesting observations
http://business.timesonline.co…..336769.ece
Thank you, Ian. One of your best again. I had not heard of the BofA buying into the Chinese bank. So – - bottom line is that the US taxpayer involuntarily bought the Chinese bank stock and gave it to BofA, along with $8 Billion more for bonuses and miscl. expenses, huh?
I see a pattern emerging that I wish you would refute or support. I’m sure you haave read books like “Confessions of an Economic Hit-Man (John Perkins); The Best Democracy Money Can Buy (Greg Palast); and others telling about the same reports of how IMF, World Bank, World Trade Organization all co-operate in interfering in a country’s politics, bribing the corrupt/stupid rulers, talking them into big expensive projects to be built by Halliburton/Bechtel/KBR,etc., making big loans to them which they cannot pay resulting in heavy taxation of the citizens making them virtually slaves. We go in, strip their country of its resources, leaving devastation and pollution behind.
Well – - isn’t that what this economic meltdown is doing to America?
If this makes any sense to you, please help me out here.
why dont we just shoot ourselves.
for context, see the last depression as depicted in:
They Shoot Horses, Don’t They.
bankers could give two shits about us. We need some real conditions on the give away.
This shows a major flaw is supply side economics that conservatives ignore. The potential investors given the money will then invest it where the return is highest, normally outside the U.S.
That means that supply side trickle-down not only does NOT stimulate the American economy, it exports jobs to other parts of the world. That’s what globalized finance does. Trickle-down economics with tax cuts to the wealthy degrades the American economy.
As I understand the bail-out bill, the procedures for handing out the money are entirely up to the Secretary of the Treasury.
What if the new Secretary of the Treasury comes in and says that the use of (fungible) taxpayer funds to buy up a Chinese bank is not in the taxpayer interest and must be repaid to the treasury immediately?
That could put a real crimp on all purchases or mergers with financial organizations outside the U.S. Any banks that wanted to make such purchases or mergers would be required to forgo all U.S. taxpayer funds.
This recalls 1982, when US Steel CEO David Roderick famously brushed off congressional criticism of plant-closings by saying that USS ‘is not in the business of producing steel, it is in the business of producing profits!’ A few years later, they changed their symbol from USS to USX.
Sounds intelligent and just, Rickbrew9x. The first big mistake was to put so much power in the hands of the stick-up man. Then the lack of strict requirements in the legislation is a total mystery to me.
Since the $350 Billion remaining should be in control of the new Sec. Treasury, I don’t see why he couldn’t do as you suggest in sentence 2.
Sentence 3 is the only sensible correction to the abuse that Bank of America just pulled off. Congress needs to call a special session Now, scrap the former legislation and succeed it with a new bill setting out strict regulations and also demanding that the banks who accept bail-out money must begin lending to businesses with good credit history within a set period of time or return the money to Treasury.
This entire fiasco is insanity!
I am not a Bank of America apologist, but I do want to make a correction to this timeline. The purchase in question was an exercise of call options taken out before the market crash. In addition, the relationship between Bank of America and the China Construction Bank goes back to 2006. Bank of America did not enter into a whole new relationship following the announcement of layoffs, nor was the exercise of the call options done after the announcement of layoffs.
Additionally, it is worth noting that these layoffs include the reductions in workforce due to the merger of Bank of America with Merrill Lynch. That doesn’t help anyone who was laid off, but those were hardly unexpected or counter to any expectation,.
There are plenty of reasons to criticize Bank of America, but to claim that Bank of America siphoned TARP money to take over a Chinese bank just prior to unexpectedly laying off tens of thousands is stretching the truth.
China Construction Bank is one of China’s four big state-owned banks. The Chinese state has spent billions ridding its balance sheet of non-performing loans so its shares can be acquired by other companies. The US government is also cleaning up balance sheets of its troubled banks. What seems to be happening is that banking has become too big for national borders or national loyalties. Banks just follow the money flows. America is the world’s largest creditor nation, and we are just beginning to see the implications of this. Jesus saves, Moses invests, and Confucius retains the controlling stake.
Ummm, who cares if it was done before or after the layoffs? You trying to claim the two decisions were firewalled from each other? As for the call options, they didn’t have to be exercised.
And yes, it is very accurate to say that Bank of America spent 7 billion of taxpayer money and laid off workers.
You will also note that I say they shouldn’t have been allowed to buy up Merrill.