Enough of Everything but Dollars – The Money Party at Work

Michael Collins

The government bailout of failed financial institutions locks you into years of debt payments in behalf of the large private banks, debts that you did not create.

By all appearances, it also locks the country into years of a weak economy. That means unemployment, underemployment, and more suffering for those willing to work, but left out of the job market. It means lowered opportunities for those who do work and troubles for dependants and indigents. Vital national priorities including affordable health care and the massive effort required to save everyone form calamitous environmental catastrophes are now on hold or under funded.

We don’t have enough dollars. It was the banks versus the people and we just lost. The theory is that without these payments, the banks will fail and we’ll all be in a world of trouble without them.All of this depends on the questionable assumption that by saving the banks, we’re saving our economy. To date, the government has given banks a total of $4.4 trillion dollars. That’s half of the accumulated debt for the federal government.

Citizens get the following from the recently passed $787 stimulus package: a voluntary program that allows banks to lower mortgage payments to help those with troubled loans; an extension of unemployment insurance beyond that provided by states; some innovative environmental programs; and, a much needed start on infrastructure repair. For those working and meeting their obligations, there little but a promise of rescue from calamity.

Here’s how the federal government and Federal Reserve Board have spent your money and obligated your debt.

Graph: The banks received $3.2 trillion through the Federal Reserve, a $700 billion bailout in October, 2008 and 2009 budget item for another $750 billion bailout. An unspecified number of citizens will benefit from the recently passed $787 billion stimulus bill.

All the failed banks had to do was wag their tails in unison and dollars flowed their way.

There has been debate on how to describe the current economic state – recession or depression. Reluctant to admit that we’re even in a recession, private banks, most U.S. economic gurus, and the federal government consistently uses the term recession.

If you’re living this experience right now in an area hard hit, you’ll be interested to know what the International Monetary Fund (IMF) had to say. On Apr. 9, 2008, the IMF warned of a danger that the U.S. recession could become a depression. Nine months later, this February, it noted that the “Advanced economies are already in a depression.”

The program to avert a prolonged depression consists of massive infusions of money into the private banks. The recipient banks are, of course, the very same institutions and executives who brought us this economic catastrophe.

So right now, citizens are holding the bag for the money given to the banks, while the banks have no obligation to tell anyone where a majority of this money went or even to repay it.

The banks were expected to take our money via the federal government and create credit opportunities for citizens, credit that would boost the economy. Instead, they took the money and created much tighter credit. As a result, the dollars needed to save citizens from the suffering caused by a depression are not available for that purpose.

Even though citizens will see no benefit in the bank welfare program, they are allowed to anticipate years of economic hardship in order to pay for it. We are currently held hostage by false assumptions about the supposedly inevitable decline of the economy and the suffering that must follow. The most damaging assumption is that the public has to bail out private banks for losses due to massive negligence (at least) leading to their insolvency.

We have become indentured servants working to prop up a comatose financial system and the banks that crated this crisis in the first place.

Does it have to be this way?

The United States has the most productive workforce in the world, thirteen of the top twenty research universities anywhere, and plentiful natural resources. We can feed our selves reasonably well, provide health care for everyone if we choose, and address educational needs when they are recognized. In addition, we’re located between two very friendly countries and populations. That constitutes real wealth.

The nation and people possess everything needed to address the current financial crisis except one seemingly vital element, dollars. We lack the dollars in both the private and public sector to support needed public initiatives and the requirements of business. Citizens also lack the dollars to spend on essentials and non essentials, a critical step in bring the economy back to some semblance of stability.

What are the banks doing with all those dollars they’ve received from us? First, they won’t tell us because they don’t have to for all but the most recent $750 billion gift. Second, they’re in no hurry to make those dollars available for productive purposes. It raises a legitimate question. Do the banks even have this money anymore?

The suffering awaiting the ongoing economic collapse is guaranteed as long as we have faith in the necessity of preserving the current financial system and the assumption that underlies it: we need to pay the debt for what they spent and lost.

Why should we?

We have businesses, small and large, which meet important needs and provide services that are of value. We have citizens and organizations that want to acquire those goods and services. Paying the debt for financial institutions and investors who will do again what they’ve already done.

A great national debate should begin on what replaces the system that failed so miserably and it needs to start with the masses of people who actually do the work that produce our nation’s true wealth. .

END

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Michael Collins

DC area

19 CommentsLeave a comment

  • The Federal Reserve’s purchase of “assets” (Mortgage Backed Bonds) comes with income, so these bonds have some value.

    The real question what price did the Fed pay for these bonds? Did the fed buy them at face value, or some huge discount off face value? We’re reasonably certain they Fed did not buy then at market value.

    The Fed just created money to buy these Bonds. Poof, like magic fairy dust. The Fed’s cost of funds is zero – the Fed pays interest to no one. The Fed can write off these Bonds, and poof, they are gone. And the Fed will write them off, and it will cut the money supply.

  • … this is a superb missive! It seems much of the corporate media is focused on hapless homeowners, while the “Gangs of New York” and assorted top bankers whine for ever-more trillions.

    While Obama may be the smartest guy in the room, the room is otherwise filled with the likes of Larry Summers, “Turbo” Tim Geithner and Rahm Emmanual. All are arsonists now professing to be firemen. Jared Bernstein appears to be the only true progressive.

    Another thing that bothers me Michael, is the Federal Reserve’s absolute refusal to tell the public which entities are involved in its so-called “Cash for Trash” programs. My God, their Balance Sheet has swelled from 860 Million (Dec. 2007) to presently 2.2. TRILLION!

  • Bank Balance Sheet (Example)

    BC (Before crash)
    Assets (Billions)
    1,000,000,000,000

    Liabilities
    900,000,000,000 (Deposits)
    90,000,000,000 (Capital)

    Assets = Liabilities, Ratio of capital to Liabilities 10%

    AC (After crash)

    Assets (Billions)
    800,000,000,000

    Liabilities
    900,000,000,000 (Deposits)
    00,000,000,000 (Capital) – None
    (100,000,000,000) Depth of Insolvency (Balance sheet is unbalanced)

    Assets << Liabilities, Bank is Insolvent becuase it cannot pay its depositors. The Banks never report this, because they will lie on the value of their assets, becuse they cannot report insolvency. AL (After Life Support of 110,000,000,000) Assets (Billions) 900,000,000,000 (This is "worked on" aka: Lied about) Liabilities 900,000,000,000 (Deposits) 10,000,000,000 (Capital) Poof no insolvency. Ratio of capital to deposits 1:9. This needs work as I don't understand the accounting of the TARP money. I believe the Banks "work on" their assets. Consequence 1. The Banks are now scared of consumers, as consumers have got past the fear of defaulting on loans. 2. The Banks can't lend. They will preserve their capital to survive (pay the CEO). TARP did not provide the banks money to lend. It recapitalized the banks so they were not insolvent and could survive.

  • … THE FED”S BALANCE SHEET (11/21/07) Grand Total was $868 BILLION!

    Still, it’s a staggering expansion of Federal Reserve Bank credit to the present 2.2 TRILLION! And, of course, it’s for our own good that the citizenry must be kept in the dark!

  • The $4 trillion, more or less, is replenishing the capital that has been destroyed (or will be destroyed) in the banking system through securities and credit losses. It keeps the banks standing in place with little to do except process cash through customer accounts. The money isn’t coming out of the system – it’s a capital injection. Since banks are deleveraging from 30:1 to 8:1 assets/equity, at most about 10% of this money is going to find its way back into the economy in the form of loans.

  • in other words, not much of what’s been happening has been explained to the American people in clear terms.

    And here i thought we were going to be spoken to like adults.

  • A great national debate should begin on what replaces the system that failed so miserably and it needs to start with the masses of people who actually do the work that produce our nation’s true wealth.

    XLINK

    We ain’t seen nuthin’ yet. I fully expect the “discussion” to turn violent after things really get bad across the board. Finance capitalism is self-destructing in the process of trying to save itself from its internal contradictions instead of meeting them.

  • This would work if EVERYBODY agreed to it.

    But, of course, this only for the workers in the minds of the rich and powerful. They deem themselves necessary to make the system work at all. Therefore, they have a right to the bulk of the wealth and income, and they will never forego it voluntarily, even on their way to the guillotine.

  • The 4 trillion number bandied about before, but have never seen how its arrived.

    How has the government “given banks a total of $4.4 trillion dollars” to date?

  • assets
    1531, from Anglo-Fr. asetz (singular), from O.Fr. assez “enough,” from V.L. *ad satis “to sufficiency,” from L. ad- “to” + satis “enough.” Beginning as a legal term, “sufficient estate” (to satisfy debts and legacies), it passed into general use; meaning “any property that theoretically can be converted to ready money” is from 1583. Asset is a 19c. artificial singular.

    yep, you’re probably right. you can sell your farm to the Chinese, as it is our only real productive asset.

  • Although, there is some cost to just magically printing new dollars… the value of US Treasury bonds on the open market has fallen quite a bit.

    I, for one, would be happy to see a real breakdown of this money. How much of it was hard currency that we need to repay, and how much is “fairy dust” that is easier to work with?

    People might benefit from a true breakdown…


    http://bexhuff.com
    Of COURSE you can trust the US Government! Just ask the Indians.

  • As an accounting function that may be true, however, that’s not the only way to value the money created. If they’re doing that to support what is clearly a teetering economic system manipulated by those expert at the “long con,” where is the creation of “dollars” to feed people, care for their health, clean up the country/planet so that those of us around (or our children) will be able to breathe.

    The timing of all of this is instructive. The Fed created dollars to prop up banks, failing enterprises (which they should have known were losers), the panic ensues before the election and a bailout simply must happen (to wit, Obama showing up and seeming to broker it), and then Obama gets in and starts giving the banks more. THEN we get to the stimulus package, a paltry effort (although better than Bush’s twiddling).

    There was no urgency to provide relief for citizens. When they got around to it, it wasn’t much other than a rhetorical gesture.

    While the Fed was creating dollars to invest in distressed bonds that “may have some value,” there was nothing done for the people. That’s the essence of the graph – proportional assistance allocated early and generously to failed financial institutions and their management versus nothing much for citizens while millions hit the streets.

  • jbaspen, I’d hoped that Obama would be the smartest guy in the room but, on the basis of who he chooses to have in that room, it calls into question my one area of optimism.

    The Fed’s refusal is a huge issue, one of several ‘last straws’ that are ahead.

    Senator wants names of banks aided by Fed
    http://tinyurl.com/bvwpal
    8:44 AM EST, March 4, 2009

    When Sanders pressed on whether Bernanke would name the firms that borrowed from the Fed, Bernanke replied, “No,” and started to say that doing so risked stigmatizing banks and discouraging them from borrowing from the central bank.

    According to the text of the proposed bill, e-mailed by Sanders’ staff, he wants the central bank to identify any firm that has received financial assistance since March 24, 2008.

    That was Wednesday. Yesterday, the less than charming Sen. Shelby managed to look like a hero of sorts beating on the Fed for an answer to the same question.

    We elect people who promise to deliver on issues and actions that are, at best, partially addressed. But when they employ financial “experts” who trash the economy and show no remorse or cooperation while people are losing their retirement, homes, and sense of fundamental security, both the elected and the Mandarins need to expect serious consequences, many of which they will not like.

    The two most instructive questions to ask Chairman Bernanke is simply:

    Why are you giving so much money to such a collection of failures?
    When someone fails that miserably, what makes you think they can manage an institution that can make any repayment, whatsoever?

    But like the AIG bailout, it will get worse before it becomes anything else.

  • I’m glad that people like this are slipping onto the airwaves. Those who actually works, even those in the high six figures, are seeing a general collapse of the product of their work. When I herd the first blip about GE getting in on the bailout weeks ago, I though, damn, this will get extremely ugly. Well, the poster child for success is now selling at $6.00.

    The hot spot of desperation may be Florida. They were hammered with fore closures in 2008 and January 2009 was around 50,000. That’s a lot of people hitting the streets … without a job.

    Carl Hiaasen, who is usually hilarious on topics related to Florida, wrote the epitaph of the state as a functional political unit recently:

    The state stands to receive billions in recovery funds from Uncle Sam, some of which might actually trickle down to people who need it. Still, the money will do nothing for the long-range, dead-end plight of a place where growth isn’t the product of prosperous industry; it is the industry.

    Nothing about Florida’s frantic real-estate boom turned out to be enduring or real, except the suffering of those now losing their homes and their jobs.

    The coming “deluge” seems inevitable, working within the current system and with the current cast of characters. Take a look at this site and all the “recovery” fraud already up and running in Florida.

    http://floridaforeclosurefraud.com/category/florida-foreclosure-fraud/

    Hiaasen’s article (great writing!) referenced the foot soldiers of the Florida land rush – 10,000 ex felons from Florida prisons. How about that? Who could have predicted such a collapse?

  • I looked at it as combined resource allocation for the specific purpose of handling the financial crisis. The $3.2 is money from the Federal Reserve to the banks (see chart at link). The two bailouts are added onto that and you are at BANKS: $4.65 bil. Stimulus bill is the crisis allocation for the PEOPLE: $O.787 bil. I should have included the $140 bil. the banks get in a tax break written by a Treasury staffer, which those interviewed on the subject said was very likely illegal.

    The Banks get much more than the people get, they get it earlier, and they don’t have to do what we were told they were supposed to do, create a credit market that can actually stimulate some economic activity.

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