What the Banks are Doing With Our Money…

Mark Twain once said: ‘If you pick up a starving dog and make him prosperous, he will not bite you. This is the principal difference between a dog and a man.’

How right he was.

When we, the taxpayers, picked up the starving banks and made them prosperous again, they didn’t just bite us, they mauled us.

The innocuously named TARP is plainly and simply the biggest heist the world has ever seen. $700 billion dollars of our money to pay for their screwups. That’s about $2000 for every single man, woman, and child in the United States. Never before has the incompetence and greed of so few been borne by so many.

And the worst part is, the heist isn’t over. It’s still going on, right under our noses! That $700 billion (which, incidentally, is enough to provide free health care for the uninsured for the next decade – source) won’t do a jot towards making the economy fine and dandy again. Why? Simply because the vast majority is being misallocated or downright squandered. What incentive do the big banks have to lift their game now that the we’ve effectively handed them a blank check?

Take the fine folks at Citibank, who were waiting on their brand-new tax-payer funded $50 million Dassault Falcon 7X before the Obama administration put the nix on it. ABC News has the scoop:

The high-flying execs at Citigroup caved under pressure from President Obama and decided today to abandon plans for a luxurious new $50 million corporate jet from France.

The decision came 24 hours after the banking giant, which was rescued by a $45 billion taxpayer lifeline, defended buying the state-of-the-art Dassault Falcon 7X — one of nine to be flying in U.S. skies — as a smart business deal.

The jet, the epitome of corporate prestige and privilege, can carry 12 passengers in elegant comfort.

ABC News has learned that on Monday officials of the Obama administration called Citigroup about the company’s new $50 million corporate jet and told execs to “fix it.”

While the current administration should be applauded in this instance, the reality is that most injustices will slip through the net. Many already have. US Bancorp, which received a ‘mere’ $6.6 billion of taxpayer money has found a particularly ‘creative’ use for their bailout money – buying up their smaller competitors who did not qualify for the TARP. Many other banks have followed suit.

In other words, our money is being used to make the banking industry even less competitive than it already is, and create a whole new bunch of unprofitable, incompetent businesses that are ‘too big to fail’.

27 thoughts on “What the Banks are Doing With Our Money…”

  1. i totally agree. people have said that madoff created the biggest ponzi scheme we’ve ever seen but i disagree; paulson and crew did with that $700 billion fake bailout.

  2. I know what you mean… Paulson used to work for Goldman Sachs for god sakes! Talk about the fox guarding the henhouse.

  3. Ha! You sound just like me. Too big to fail my a**. Let them crash and burn and I’ll keep my money thanks. Why yes, I do enjoy banking at my local credit union that doesn’t make stupid loans to stupid people until they collapse under their own weight.

    Wouldn’t life be grand if we only had to pay for those programs and government expenditures that we approve of? Check this box and take a tax credit of $2000 if you do not support the TARP program. :) Ha!

  4. You know, originally I was in favor of this bailout. Working in the banking industry, I saw the need, and frankly, had it been better regulated and put to proper use, it might have been successful.

    It is my opinion that the many members of our government are incapable of making high-pressure decisions quickly and efficiently. There was clearly a time crunch on this, and as a result, Congress wanted to pass TARP with all due haste. The problem was, there were no specific regulations put into place. If the banks didn’t need the bailout money, then why force them to take it? This whole mess has made the American government look like a big joke and we will be the laughing stock for some time to come.

    @ J. Money – Flicking? I haven’t heard that in a while! LOL. Maybe it’s a South thing, but in Texas we call it ‘flipping the bird.’ Hmph! There are definitely some people I’d like to flip off…right now at the top of my list is Citibank! Seriously, $50 million on a jet? Good grief, will the idiocy never end?

  5. J. Money: They’re doing way worse things than just flipping us off, but I can’t show the pics because they wouldn’t be safe for work :)

  6. I agree with your assessment but I think you are letting Congress off too lightly. They delegated appropriation authority over TARP money to the Executive branch (which is not really constitutional) with no guidance or oversight. This is what happens.

  7. Mr. G: You’re quite right – Congress is a huge part of the problem. It is now glaringly obvious that most of our ‘representatives’ have been well and truly bought.

  8. Steve, I don’t think it’s particularly constructive to blame the boomers. How many Gen X/Y are out there protesting? Where is the outrage? The sad truth is, we’re all just sitting back and letting it happen.

    No, I’m not saying the boomers didn’t screw things up, I’m just saying that this ‘passing the buck’ mentality won’t do us any good.

    I’m an Gen Y’er, for what it’s worth.

  9. I agree with the post’s premise 100%

    However, your usage if Citi’s jet purchase as case in point is “spun”

    The truth is that jet was ordered 3.5 years ago.

    Long before any bailouts or housing issues existed.

    It is only now that the built to order plane is ready for delivery that is it a PR blunder. The multimillion dollar deposit paid years ago will have to be forfeited. It is not quite as clear cut “greed” as portrayed.

    Do they need the plane. Likely not. To paint it as thought they were going out and buying “luxury” aircraft on a whim however is misguided.

    I am not defending them, but there is more to the story than your post implies.

  10. You realize that if the banks didnt buy up some of the smaller banks, they would collapse and disappear? Like, poof – gone – where did my savings account go? Then the government has to bailout the bank deposits (FDIC Insured) and consume the balance sheet risk – we (tax payers) pay for it any way. A touch short sited on your part. Through purchase, the deposit of the bank are backed by real dollars and the purchaser also consumes risk (poor investments). The reason the banks are getting money – the reason for the bailout.

    I find it unfortunate that a vast majority dont realize that people just like you are employed by these banks. People that dont make millions (even hundreds of thousands) in salary a year, have mortgages, children, college debt, and live lives that rely on a pay check.

  11. Ryan, I think you will find that you are the one being short sighted.

    Look at it this way.

    Current situation:

    1. Taxpayers (i.e. you and me) give big, incompetent, insolvent banks hundreds of billions of dollars to cover for their screwups. We, the people, are ‘sold’ on this package because we are told that bailing out the banks will get them lending again and put the economy back on track. We are also told that letting these incompetent and insolvent banks fail would result in some kind of financial armageddon.

    2. The big, incompetent and insolvent banks, after receiving said billions, either hoard it or use it to buy up their smaller competitors, thus reducing competitiveness in an already infamously consumer-unfriendly industry, and making the leading players even bigger and more incompetent.

    Granted they may not be technically insolvent anymore (since WE paid for THEIR screw ups), but what’s to stop the situation from recurring 10 years down the road? Nothing. They were never held accountable for their greed and incompetence. What incentive do they have to shape up? None.

    Another thing you’re misinformed about is that the purchaser consumes the risk. Take the US Bancorp purchase of its competitor as an example. Part of the deal is that the Federal Reserve will absorb most of the bad debts involved in that transaction. In other words, the tax payers are ALREADY consuming the balance sheet risk.

    Believe it or not, I do realize that people just like me employed by these banks would lose their jobs (Of course, even WITH the bailout they’re losing their jobs, but anyway…).

    If we really want to look out for these folks, wouldn’t a better way to spend that 700 billion dollars have been to retrain all those people and support them until they got back on their feet?

  12. Lets balance the picture here away from a clear bias – we are not paying for the banks screw ups. We are paying for an American screw up. We, as in our community – our companies, neighbors, municipalities, even states participated (maybe even yourself) in this mess. The mistakes and incompetence are not limited to ‘the banks.’ This was American greed.

    You realize the TARP money is conditional? In many cases stating the TARP consumer must purchase up failing entities and/or provide a management board seat or internal office to the government. You realize there are a number of banks that have turned down the TARP money, but have been forced to take it?? The gov is implementing oversight with these loans.

    I am far from misinformed. The government didnt take the entire balance sheet from Bancorp – they put limits on the losses that Bancorp would have to absorb under the condition that the underlying assets failed. This has been the deal on EVER loan. It comes down to – do you want the tax payer to consume all of the risk or a portion of it? I prefer to have it hedged short term with holding banks and longer term with the government – not all of the risk on the governments shoulders. History has proven that the government will make billions more than the loans and take benefit from holding the underlying assets.

    I am lost when you say ‘retrain.’ How does it make sense to say ‘I’m going to let an entire industry fold up and then retrain all the people left in the wake?’ This is a situation that would eliminate banking competition.

  13. You’re right – I can’t deny that a big part of the problem was greed on a massive scale, and the resulting addiction to unsustainable levels of debt. It’s not all the evil banks fault. But nonetheless, the banks must still bear the brunt of the blame for the simple reason that it is THEIR JOB to allocate credit responsibly. In other words, yes it’s true that the guy making 30k a year who gets a no money down 800k loan on an overpriced McMansion is being greedy, but the bank that extends the loan is being both greedy AND incompetent.

    You say ‘It comes down to – do you want the taxpayer to consume all of the risk or a portion of it?’ but I fear you are missing the point. Under the current system, the taxpayer IS consuming all the risk. If Bancorp suddenly goes under, who do you think will be footing the bill?

    As for letting an entire industry fold up – could you be any more melodramatic? There will always be a finance industry. New, more efficient corporations would fill the vaccuum left by the old, incompetent, insolvent ones. That’s how capitalism is supposed to work. What we have now is socialism for the rich, while the rest of us get the short end of the stick.

  14. We will have to agree to disagree – it takes two to tango.

    Risk and failure are two different things. I think you are working off the assumption that 100% of the identified assets are worthless. They are not – the banks know this and so does the government, but they have risk (large risk). The question becomes what is the most appropriate way to distribute the that risk. My point being, I prefer a model where we have two institutions working together to distribute the risk across a broad space. Clearly the government preference as well – they dont want Americans to absorb both bank failure and risk. You have to understand the cross implications of something like Bancorp or Meryl going under?? (Or AIG for that matter.) The hurt to the taxpayer would exponentially grow, destroying more than just the financial industry.

    I also get the impression you think this could happen again. I will first say anything is possible…. but its not like anyone is enjoying this. Banks dont take pleasure in losing profits, laying people off, and closing their doors. Beyond their own restructuring and controls, you will see a new set of government standards and measure that place improved controls on banking. This situation isnt profitable – now everyone understands why. I highly doubt you or I will see anything like this again in our lifetimes.

    Where are these ‘new efficient’ corps coming from? Our old banks are the new banks. How many banks CEOs and boards have been fired? How many banks have disbanded/sold off complete organizations in favor of a more streamline model? Capitalism is taking place. Please tell me what that short end of the stick looks like? What are you not getting that you did before?

  15. Ryan, do you work for a bank or something? i’ve never heard of any company or corporation that “didn’t take pleaseure” in letting people go. Please, it’s the first thing a corporation does, without hesitation and with little compassion. you’re lucky if you can collect unemployment, let alone a severance package. So spare me the wailing about how the banks aren’t at fault.

  16. Trying to spend your way out of a recession is like trying to stand in a bucket and pick yourself up by the handle. Why is inflation so high again?

    Whatever happened to personal responsibility and accountability in this country?? You make a stupid decision, you live with the consequences. It’s no one’s job but your own to get you out of whatever mess you get into and the same should go for companies. A little pride in your own accomplishments wouldn’t go amiss around here either.

    It may have been American greed that got us into this, but it wasn’t mine. I have the same opinion of the banks that lent these mortgages as I do of the people that got them. For those of us that live within our means, save, plan for retirement, pay off our debts and generally don’t behave like financial morons, we have every right to be upset at footing this bill. It’s like hitting a tree and asking all your neighbors to help you pay for the repairs to your car. Your the one who drove into the tree stupid, you deal with it. If your kid runs up a credit card, do you pay it off for him, or make him pay it so he learns better? What’s good for the goose….

    Sure, there would be massive consequences to letting these businesses fail, but the precedents we’re setting now are way more dangerous than any potential cost. As if the federal government hasn’t already acquired more power than it was ever meant to have!

    And just for fun, the scariest thing in the world: “Hi, we’re from the government. We’re here to help.”

  17. I am one of those responsible people. I don’t have a mortgage I can’t afford. I don’t have mounds of high interest rate debt. I drive a sensible car and live in a sensible home and HAD a sensible retirement account. None of this good ol’ responsible living saved my husband for being laid off or for my 401K from declining 30%. The WSJ should be sold with prescriptions of zoloft, because reading the front page list of companies who are laying off thousands of employees can make you feel like living in a cave. Not all of these soon-to-be-jobless were irresponsible.

    It was he massive scale of the greed of the financial industry, fueled by lax regulations on one side and non-enforcement on the other, that enable a utter failure of the financial systems. 40:1 leverage??? Who in their right mind would not only allow but heartily approve??? I read today in the NYT that financial executives have received bonuses at the end of 2008 on par with the bonuses paid out in 2004. How can this happen???

    I really don’t understand why we are not more angry about this. Why are we not protesting in the streets? Why are we not ransacking Wall Street? Where are the indictments?

    It is very easy to say that we should just allow these failures to happen and suffer the consequences and that government should not get involved, but the victims of such consequences are far ranging and may not have the resources to weather the storms. I also have the distinct impression that the true perpetrators will suffer very little from the debacle they have created.

    My husband and I are luckier than most as our sensible living has enabled us to maintain our lifestyle on one income for a good period of time, but I can only hope and pray that my husband finds something before that period is up or before I loose my job.

  18. Ryan: “Clearly the government preference as well – they dont want Americans to absorb both bank failure and risk”

    I think it’s pretty clear that ‘the government’ doesn’t really give a sh*t about Americans absorbing bank failure and risk. The government, at least the parts that count, has been well and truly bought. Do you think it’s a coincidence that Henry Paulson ‘used to’ work for Goldman Sachs? By the way, Goldman, Citibank, Morgan Stanley, and JP Morgan were all among Obama’s top contributors (source: http://www.opensecrets.org/pres08/contrib.php?cycle=2008&cid=N00009638). I guarantee they weren’t shelling out that cash out of the goodness of their hearts.

    You will probably think I am a cynic, or worse, a conspiracy theorist, but recent events have shown that the US is a plutocracy in reality and a democracy in name only. I find it very telling that for decades we were told that universal healthcare was either ‘too expensive’ or would interfere with the free market, but when the banks are in trouble all thoughts of fiscal prudence and the free market are swept aside in an instant.

    “Please tell me what that short end of the stick looks like? What are you not getting that you did before?”

    I think most people’s answer to this question would be ‘a paycheck’.

  19. Gen Y, actually he **does** work for a bank. WordPress automatically logs the IP address of everyone who comments on the blog, and his comes from ‘bankone.com’, which redirects to the Chase website!

  20. Slinky and Susanna, damn straight.

    Susanna: “I really don’t understand why we are not more angry about this. Why are we not protesting in the streets? Why are we not ransacking Wall Street? Where are the indictments?”

    That’s the most depressing part of it all, in my opinion. People either don’t understand or (more likely) don’t care that they are being ripped off. Apathy and willful ignorance are the new hallmarks of Western civilization.

  21. I think the most depressing part is that we really can’t do a damn thing about it. Sure, we can email or call our representatives and complain about it on the internet, but that’s really about it. All that’s left after that is to roll over and take it.

  22. Agreed on this Jonathan.
    In fact here in Europe the same thing is happening and the cost per taxpayer is already more than the 2k startout money you used in the US.

    I wonder how much we are going to see in return if the economy is ever fixed.
    My guess.. nothing

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