Last week I seriously considered leaving this topic alone. After sitting all week, I now realize I have to say my two cents worth.
1. Bank Profits – It’s all a scam. Let me ask you if you could borrow all the money you could at zero interest rate and invest it at 4% do you think you could make money? Perhaps we all could. This is what the banks do. They borrow from the Fed at no or almost no interest charge and then they buy US Treasuries, because foreigners are no longer buying our debt and because the FED “promised” they would stop buying it on March 31. So now they just have the banks do it for them. That is how the US is financing its debt these days.
In addition, let me ask you if you could take all of your investment losses (no matter how risky they were) and sell them to the FED for 100% of your cost basis while being allowed to keep all of your investment gains, do you think you could show a nice profit? This is what the banks do using the TARP bailout money. All of their bad loans and mortgages get sold back to the FED at zero loss, while they keep the positive performing loans. So as you can see there is no downside to being in that business today assuming your bank is large enough to be “bailed out”.
So with no losses on the books and handsome profits from their Treasuries, the banks were able to go to the public (using their taxpayer money) and raise capital by selling hundreds of millions in stock. They then used the shareholder (taxpayer) money to repay their government TARP loans. The government then hails the repayment as a sign that they were able to save the world from destruction. They simply used taxpayer money (from TARP) to give to their friends (at the large national banks) so they could sell new shares and use that money (from taxpayers) to repay the government (taxpayer)
2. General Motors – Recently it was announced GM paid back it’s loan to the government. The media almost cried about how wonderful this was. Some even suggested that the government really could successfully run a profitable business and this was a great example of that. Let’s review what happened here. The government and labor stole the company from the old shareholders and bondholders – who received zero return for their investment. Now that the government owned 60% of the company, they ”loaned” GM over $160 billion. Now the new GM and no debts and taxpayer cash in the bank. The company turned around and issued new shares to the public to raise billions so they could repay the “loan” to the government (taxpayer). This is just another example of how this works: the old shareholder gets screwed (ends up with zero), the taxpayer has to pay for the Stimulus loan (so they get screwed a second time); the company sells new shares to the public (so the taxpayer gets screwed a third time); and when the loan gets repaid, the politicians will just spend the money on something else so the taxpayer will get screwed a fourth time since it will still have to pay for the initial Stimulus package. These guys have really good jobs!!