Tuesday, November 25, 2008

Money Run Amok

The public was aghast that taxpayers would be throwing $700 billion at financial institutions, and lawmakers were inundated with mail and emails from constituents which ran overwhelmingly against such a bailout. After adding “safeguards and oversight” to the bailout, it passed anyway. Of course the allocated money is gone and the oversight has not been even appointed yet, and the scale of the bailout is actually vastly larger than that to which taxpayers objected. How much bigger?

Seven trillion dollars bigger.

If you hated throwing $700 billion at failing institutions, how do you feel about throwing $7.7 trillion at them? That's half of the amount that our entire economy produced in the current year.

Having done that, however, Congress is loathe to toss $25 billion to the automakers. My calculator cannot handle those numbers, but $25 billion is a tiny fraction of one percent of the amount of money that has already been committed to rescuing this economy. Talk about swallowing an elephant and choking on a gnat.

Some highlights of the article.
“Some have asked us to reveal the names of the banks that are borrowing, how much they are borrowing, what collateral they are posting,” Bernanke said Nov. 18 to the House Financial Services Committee. “We think that’s counterproductive.”

The “some” to whom he refers would be legislators, of course, our elected representatives and, as such, the American taxpayers who are footing the bill for this. It’s “counterproductive” to let us know where our money is going and what is being done with it.
After Bear Stearns’s collapse in March, the central bank started making direct loans to securities firms at the same discount rate it charges commercial banks, which take customer deposits.

In the three years before the crisis, such average weekly borrowing by banks was $48 million, according to the central bank. Last week it was $91.5 billion.

Prior to the crisis the central bank lent only to commercial banks, then it not only began lending to securities firms, it began doing so at the same interest rates receives by those banks. And just look at the amount it is lending.
House Financial Services Committee Chairman Barney Frank said he was angry that banks used the money for acquisitions.

“The only purpose for this money is to lend,” said Frank, a Massachusetts Democrat. “It’s not for dividends, it’s not for purchases of new banks, it’s not for bonuses. There better be a showing of increased lending roughly in the amount of the capital infusions” or Congress may not approve the second half of the TARP money.

Having already gotten $7.7 trillion, how worried are they about the remaining $350 million in the TARP funds? Barney Frank is shaking his fist in his pocket.

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