We’ve Been Snookered

We’ve been snookered. That’s the only way to describe the financial bailout. And by “we”, I mean "you and I", the long-suffering US taxpayer.

 

Quick question: How much money have we spent to bail out our irresponsible banking system? If you’ve been paying attention, you’d answer $700 billion, because that’s what Congress authorized in the Troubled Assets Relief Program (TARP). If you have really been paying attention, you’d say $350 billion, because half of the $700 billion has not been spent yet. But the correct answer, at least according to Bloomberg News, is $7.4 Trillion-with-a-T. To put this number in perspective, that’s roughly $100,000 for every famil of four in this great nation. It's also more than half the total annual production capacity of our economy.

 

How do you get from a $350 billion bail out, or $700 billion when we are all-in, to a figure more than 10 times higher? Because in addition to the bailout, there is an open-ended commitment by the Fed to buy commercial paper to prop up banks, so far amounting to almost $3 trillion, and another $1.4 trillion in inter-bank loan guarantees made by the FDIC. Bank can't pay back its loan? No problemo- you and I are happy to oblige. The money to bailout AIG and JPMorgan, amounting to almost $200 billion, is in addition as well. As is the $300 billion in asset guarantees “you and I” gave yesterday to save Citigroup. As is the commitment to buy various troubled assets from a host of banks and bank-like organizations. No one knows for sure what we get for all this mispent cash, unfortunately, because the Treasury is refusing to disclose loan recipients or reveal details about the collateral they are taking in return for the loans. Probably they are required to protect the guilty, but not the taxpayer.

 

A few random notes. Hartford Financial Services Group just bought a bank for $10 million. Is it because they now believe there are tremendous opportunities in the banking center? Of course not. They hope now that they are a bank holding company, the Treasury will let them apply for bailout money to rescue them from bad investments that their life insurance business has made. The CEO of Hartford said, apparently with a straight face, that the company should be eligible for between $1.1 and $3.4 billion in bank bailout loot. For a $10 million investment. That’s at least a 110x return, pretty good in this market.

 

Three other financial services companies, Genworth Financial Inc., Lincoln National Corp. and Aegon, have also applied for the right to become thrifts. GM is also interested. We are all banks now, it seems.

 

We all know the sorry saga of the automaker CEOs, who were turned down for a mere $25 billion because they came to Washington in their private jets. Apparently this was over-the top, even for Washington. The CEOs were told to go home, book economy flights on the next commercial carrier back to Washington, and maybe they will get a different answer. I have heard that at least one of the CEOs is bravely prepared to put up with the indignity of commercial travel once if he can get at least $10 billion for his troubles.

 

Not to be outdone, the cities of Philadelphia, Phoenix, and Atlanta have asked for $50 billion from the TARP slush fund. Perhaps they qualify because they allow ATMs in city hall, who knows? But my favorite example of extreme municipal chutzpah is San Jose, a relative flyspeck of a city with a downtown slightly less impressive than Manchester. The mayor of San Jose has his paw out for $14.4 billion in federal assistance, more than 4 times his city’s annual budget. Mayor Guinta, are you reading this?

 

I try to pay attention to matters financial, and the bigger the financial numbers the more attention I pay. But I have never seen anything like this. I don’t think there ever has been anything like it, at least since the looting of Rome by the Visigoths. And it is happening under our noses. We have been snookered by the biggest con artists in history. They are literally walking away with our nation's wealth, and we are watching.