Quite Possibly A Stupid Question

[Steely_Dan]

I hope that this doesn't give away how ignorant my wife and I are concerning economic issues....

My understanding is that the banks are holding on to the bailout money (our tax dollars) and not providing loans to small business and others in need.

Here is my question:

When all this money went out to the banks and financial institutions as a bailout, why didn't some (anyone) make it mandatory that a certain percentage of the this money MUST be loaned out to the rest of America as a part of the bailout agreement? Am I missing something here?

-P

[gateley]

1. I don't have a definitive answer, but possibly that was initially included but

was one of the provisions taken out in order to garner bi-partisan support? Or, Geithner raised his ugly head.

[Taitertots]

2. You are missing the collusion between the banks and government

Which explains the whole collapse and bailout fiasco.

[The Magistrate]

3. That Is Not A Bad Idea, Sir

Although, given the nature of the beast, i.e., the bankster, a requirement to loan a percentage would doubtless have led to a good many collusive swindles, with the money going to cronies and shell companies and the like, and winding up in the bankers' own off-shore accounts....

"Invisible hands spend a lot of time in other people's pockets."

[Steely_Dan]

4. Okay...

You might half to explain this to me as if I were a third grader...cuz, I still don't get. If what you say is true, then why couldn't there be some oversight as to where the money went and to what benefit (i.e. the tax payer). What about transparency and accountability? What about some REGULATION with regard to that money?

Sorry...I must be slow.

-P

[The Magistrate]

9. Just As There Are Police, Sir, And Yet Burglaries Still Occur In Good Numbers

There would certainly be regulation and over-sight, but a good deal of fraud would still occur; it is simply in the nature of the miscreants in whose hands the money is held. Businessmen are not very honest, when all is said and done. The problem is that it is a lot safer, just now, for a bank to buy government paper, on which it will make by the interest paid a smallish but absolutely secure profit, than to take a chance on lending to any private business or person, however apparently credit-worthy. So that is what they do with the money they have been given. This increases their reserves of capital, making the bank more secure against the cost of the many bad loans still on its balance sheets, and being carried as 'assets', at a much higher valuation than anyone would actually pay for the notes. So the Treasury is happy, since the whole purpose of the bail-out was to strengthen the capital position of the banks, and not particularly to aid the economy as a whole. the theory is that stronger banks will necessarily, sooner or later, help the whole economy, but helping the whole economy is a by=product, not the goal. If the goal was helping the economy, money would have been passed through debtors to the banks, wiping out the debts they owed the banks.

[Steely_Dan]

10. Thank You!

What you wrote makes perfect sense. It is a matter of risk and security.

-P

[CoffeeCat]

5. Do you remember how adamant Hanky-Panky Paulson...

...was that the banks NOT be mandated to do anything specific with the bailout funds.

He couldn't have been more clear and insistent that these bailout funds needed to have
"no strings" and that the banks needed the freedom to do whatever they wanted with the
money.

I applaud you for bringing up this topic. There are so many scandals these days, it's
easy to forget how this bailout was positioned to the American public. At first, they
said that if we didn't give up the billions--the financial world would collapse in a heap
of dust. Then, they said the money would be used to free up the credit markets. No one
was loaning to anyone, and that money would be earmarked for banks to loan out to keep
businesses running and new businesses forming.

What a HUGE crock. Consumers were NOT taking out loans. They weren't interested in taking
on MORE debt. Small businesses weren't either. Everyone was hunkered down, scared half
to death to even buy a pack of Lifesavers. The problem wasn't a lack of money supply. The
problem was lack of demand, due to consumers being terrified. Everyone was being laid off
or they were taking a paid cut--or afraid of one/both happening.

So the rationale for the bailout was pure bunk.

I'd like to know where my money is.

Again, thanks for talking about this topic and for encouraging others to do so, as well.

I think we'd all like to know what they did with OUR hard-earned dollars. Dammit!

[Steely_Dan]

7. Thanks Coffee

I just don't hear enough about this issue. For me it is a no brainer. It needs to be looked at very carefully. At this point, I see it as nothing less than a complete rip-off of the American tax payer.

[EFerrari]

12. Except it is true that small businesses had their lines of credit cut

way back.

It is true that loans were not funded so a lot of projects just stopped.

There are a lot of small business people that do rely on credit and they were first cut off and then killed when the banks didn't lend it forward.

[Steely_Dan]

6. I'm trying to imagine...

...what the conversation was like between those to receive bailout money and the government.


Government: Okay, here's $2.5 billion to insure your survival.

Bank: Thanks, this is great. You won't regret it.

Government: Well, there are some requirements with regard to this bailout.

Bank: Oh?

Government: Yes. In order to receive the money, you must agree to spend at least half of the the $2.5 billion on loans to small business, startups and the housing market. The rest you can invest as you see fit.

Bank: No, that's okay. We'll pass

Now at this point the bankers have the government over a barrel. Why? Because the banks cannot be allowed to fail. They are "too big." They would drag countless other entities down with them.

Government: Well, okay. But can you at least promise to try and pass this money on to the American people?

Bank: We'll try.

Essentially, the Government folds believing that something is better than nothing. Is that about what took place? Just guessing.

-P

[Skink]

8. Barney Frank said last night on Charlie Rose that...

30 Billion is about to be loaned to small banks with that amount to be specifaccally loaned out to the public and if not the Government would impose penalties, so we will see.

[Steely_Dan]

11. Excellent.

Thank you. Indeed, we will see.

[Meldread]

13. No such thing as a stupid question, only stupid answers.

This should hopefully answer your question.

When the meltdown happened it revealed a lot of unsavory things. You know the children's story, "The Emperor Has No Clothes"? Well it was like that.

It all started with mortgage lenders giving loans to people who couldn't afford them. Since they couldn't afford the homes, they went into foreclosure. This means the lender had to write off at least some loss. However, instead of isolating things to one institution, they sold those mortgages to bigger institutions. Those bigger institutions then bundled hundreds of mortgages together, chopped them up, and sold them to investors (both individuals and even larger institutions). This spread risk throughout the entire system like a cancer.

As foreclosures increased, property values fell, making the mortgages held worth less and less. At the same time many large institutions were turning to other institutions such as AIG to buy "insurance" on their investments. As things got worse and worse, people started to panic and wanted to unload their investments... only to find out that no one wanted to buy them.

That's when the basic law of supply and demand kicks in - there was a huge supply of investments that people wanted to get rid of, with no buyers, which drove down their price, and got them labeled as "toxic assets." People had bought "insurance" from AIG turned to AIG and said, "Help me! I've over leveraged and I can't sell these toxic mortgage investments! Give me the money you promised!" AIG couldn't pay out...

Kaboom. :P

It resulted in the banks over leveraging themselves and basically admitting that they were broke. The government bailed them out, not because they wanted them to make loans, but because the government didn't want them going out of business. It would have resulted in economic armageddon, and that's not even an exaggeration.

Yes, politicians came on TV and complained about the banks not lending, but they weren't lending because: A) They didn't have the money to lend. B) They were afraid to as a result of what happened.

Credit is still tight, but nowhere near as bad as it was and things are starting to flow again. A huge chunk of our economy was basically wiped out, and we would have lost even more had the government not acted. The only real debate was over whether or not we should bail out private institutions or have the government nationalize them. There was virtually zero chance of nationalization, and thus private institutions were bailed out.

While this saved us from an economic apocalypse, which is a good thing, there is also a darker side to it. These institutions got even larger as a result, and being "Too Big To Fail" means you have an implicit guarantee from the government that you'll be bailed out. The Financial Regulation Reform Bill is supposed to address some of the darker aspects of the bail out culture. We'll see how that goes when we're faced with it again, and we WILL be faced with it again. It's not a question of "if" but "when".

[Steely_Dan]

17. Meldread - Excellent

Some of this I already knew and some I surmised. However, the explanation sort of put it all together for me. Thank you. I now have a better understanding of how things went down and why it is so difficult to correct our course. Thank you.

-P

[Cleita]

14. What you are missing is that our Congress had no

intention of doing that the mandatory thing. We wanted it but we didn't get it. Thom Hartmann explained it really well today. He said the money went to China and stimulated their economy not ours. However, Wall Street millionaires will benefit from it. Banks don't even want to lend money to small businesses and no one made them do it. So now you know who the real welfare queens are.

[Steely_Dan]

20. We must investigate this further...n/t

[CoffeeCat]

15. Something else that is probably important...

I hope you don't mind if I bring up a related point. I don't mean to hijack
your thread, but I think this is important.

Frontline did a special on the bailout, and the emergency meeting that Hank Paulson called
with the banks that would receive the bailout funds. I couldn't believe what I was seeing
and hearing when I watched this program. Paulson admitted that he called this meeting and
he FORCED every top bank CEO to attend. They were all given contracts/agreements that they
were FORCED to sign. The contract said that they would take the bailout funds. Each CEO
was not allowed to leave the room until they signed.

In other words, "You WILL take this money and you have no choice" was what Paulson told
these CEOs.

Paulson admitted, during the Frontline interview that at least two bank CEOs wanted NOTHING
to do with the bailout funds. They didn't want the money! Paulson said, "There was a lot
of shouting and screaming in that room." Eventually all signed.

As my husband said, when I questioned how they got the hold outs to sign, "Paulson said to them, 'You
don't want this money? Well, I guess you're going to find regulators crawling all over your books
for months, finding all sorts of things and making your life a living hell.'"

I think that's about right.

Does all of this bother you as much as it bothers me? This sounds like Tony Soprano forcing "customers"
to take loans from a loan shark--in order to control them.

Think about that. Our government forced the bailout funds on banks that didn't want any part of it. Why???
Our government wanted the most powerful banks beholden to the government and all involved in the fix.

It appears that the bailout funds were just a big payoff to the banks--a gift from our US government. Seems
like they have an agreement with one another--that they're working together. They money flows into the banks,
but what do you bet it doesn't stay there? It flows in and out--shared by the cabal of political and
corporate criminals involved in this heist.

I watched articles about Wells Fargo during/shortly after the bailout. It was obvious that they did not want
to be part of the bailout. The WF CEO was one of the shouting CEOs in that room who didn't want the
bailout funds. WF was a very healthy, big bank. They didn't do a lot of sub-prime loans. They were in
a good financial position. But, they were folded into the fray. I wonder /if/how the Wachovia acquisition played
into all of this.

I hope I didn't veer too far off course here, but I think some of this is related to the question you are asking, "What
happened to our money and why weren't the banks accountable for how they spent it?"

It seems like it was a major, orchestrated scam--and that our government forced all of the big players to play--or else.
That tells me that our money was just siphoned off, and that the "bailout" was just a ruse to cover up a big heist.

I'm not even sure the banks got that money. I think the money went to all of these criminals who are at the top--
destroying our democracy. Funneling it through the banks, in the form of a "bailout" was just a way of getting the money.

[Steely_Dan]

18. Coffee...You're Scaring...

the hell out of me. I had no idea. And Frontline of all programs...probably the most reliable and objective program on TV. I will have to check this out. If you had not mentioned your sources, I would have thought you overly cynical.

No problem on the hijack...it is not only related but inspires further investigation. Thank you.

Damn...I hope I can sleep tonight.

-P

[Meldread]

23. Only half of what you said is correct.

The first part is correct - Paulson did force all the top bank CEO's to accept the bail out money. However, your speculative reasons behind it are incorrect. What Paulson did was actually a good thing, and I'll explain why.

Not all the banks were in danger of immediate collapse. It's likely that at least some of them would have survived. Our government was trying to save many of the banks from collapse. However, they did not want the market to know who was in trouble and who wasn't. If only a handful of banks accepted government funds it would have marked them broke. This could have resulted in investors selling off all stock in the bank, causing it to collapse - despite the governments best efforts to keep them alive.

By having all the top banks accept TARP money it kept speculators in the dark. Thus, if you had stock in - say Bank of America - you wouldn't know if it was a "bad bank" or a "good bank" - thus you'd be less inclined to pull out and place your investment money with Wells Fargo (or whoever you believed a "good bank" was).

Had Paulson failed to do this, it would have meant even MORE money being spent to prop up the banks (because no one from the private sector would want to invest), or it would have meant the banks would have collapsed (with our TARP money wasted); which would have been immediately followed by an economic apocalypse. It also would mean that the "Too Big To Fail" banks wouldn't have repaid most of the TARP funds by now - private investment would not have flowed back into them.

That's why Paulson did what he did.

[mrmpa]

16. you're right

The bail out money was given to the banks, and they in turn were to begin releasing it in the form of loans to businesses. This was all reported by the media at the time of the loans. However, the banks have not released it to businesses. That's what's holding up any economic recovery in the country. If this money would trickle down to businesses, we would have employment and an increase in manufacturing.

It just pisses me off that there has been no oversight in how this money is being utilized.

[Steely_Dan]

19. And hence...My Concern

We should all be concerned about this specific issue.

[lunatica]

35. Elizabeth Warren has oversight, but she's hamstrung

Because she doesn't have enough authority. She's been on Keith Olbermann's and Rachel Maddow's shows a number of times blowing the whistle. But no one does anything about it, including the media even talking about this.

[Steely_Dan]

36. I Have Seen Her...

...and I am quite impressed.

[jtuck004]

21. You are not missing anything. Check out a copy of "It Take A Pillage"

by Nomi Prins. It details the current and former Goldman employees who are working in the Treasury and other government posts (there's a reason some refer to it as Government Sachs), the relationship they had (and have) with the Federal Reserve, and the
$14 trillion in bailout funds under various programs, as well as the ongoing movement of money to these firms as a reward for their avaricious behaivor.

The original TARP program was sold to the nation as a way to keep credit flowing. Instead what we got was the downside of careless business decisions as leveraged a part of the $13 trillion mortgage market into $140 trillion of complex mortgage derivatives. When their scheming resulted in the potential failure (orchestrated, purposely, in part by Goldman Sachs) of AIG, we could have purchased all of the troubled mortgages for some part of $13 trillion, restructured the ones we could, and had money left over. The investment banks would have failed under the weight of their own avarice, and the only disruption would have been to them. The real banks would have dealt with the Federal Reserve and the credit markets would have recovered nicely. Instead the taxpayer is now on the hook for $14 trillion in programs, the complex derivatives business is up 600% in 2010 over last year (ready to do it again?), Goldman and other investment banks and funds have taken (and continue to take) billions in bonuses, profits, and salaries, and the financial crisis they created has been responsible for a record 1 million foreclosures this year, an additional 2 million notices of foreclosure sent which may take until 2013 to fully process, and over 30 million people unemployed or underemployed. These institutions now pay back some part of the $700 billion from the original TARP program, which frees them from the oversight of their salaries and bonuses, while still collecting funds under the newer programs.

No, you didn't miss anything.

[kenny blankenship]

22. They're GENIUSES. You don't dictate terms to geniuses. They're above our understanding

What's more these men you speak of are paragons of virtue. They are accused of no crime - unless you are privy to something the Obama Dept of Justice has so far been keeping a secret from the rest of us. As free men of independent & private means, they don't have to justify anything they do. Even if they had any public responsibilities, the balance of obligation is tipped all the other way. Why, if it wasn't for them, none of us would have ever have had any jobs to lose! Why, if it wasn't for them our parents wouldn't have even met. Without them, there would be no United States of America. They graciously accepted our restitution offer--what you disparagingly call a "bailout"-- as our atonement for having let them down and for having failed to uphold the cause of capitalism. They tried to instruct by example (bootstraps! gumption! perseverance!) but we are a sorry lot of poor learners. What they do with that money is their business.

[jotsy]

24. I am by no means an expert in economic matters.

But there's a few directions I might point in to help you find some answers.

The Warning. A Frontline about Brooksley Born who is currently on the panel of the FCIC
<http://www.pbs.org/wgbh/pages/frontline/warning/view />

Propublica; I know they have a stimulus tracker but I believe there's bail out info to on an on going basis.
<http://bailout.propublica.org/list/index >

Other highly thought of names in this arena are Yves Smith and Dean Baker. My own personal favorite has to be William Black and of course Elizabeth Warren knows this stuff like the back of her hand.

I have many of my own unprovable theories as to what occurred here and why. The bottom line for me is simple in how Bill Moyers lined up an essay he wrote I found at Common Dreams. He spoke of the Great Wall of China, and how its design was a success. The wall kept the enemies out, it was the guards at the gate that offered grounds to breach. Everybody from the credit rating agencies to the cops on the beat in a virtual alphabet soup of governmental regulators all had to be looking the wrong way at the same time, and that I just ain't buying as a coincidence.

I'd be curious to know where the legal line between collusion and racketeering is drawn. Even from there, there is a distinct difference in how the law is applied to the affluent as compared to the average citizen. The scales of justice are tipped and their version of lady liberty will peek for fat pockets and squeeze the rest bone dry.

I contend the big banks are monopolizing and that is hard to see as a good thing. We are well ahead of last year's pace in bank closures with right around a hundred gone.

There's understanding to be gained, don't expect to feel secure in the knowledge though.

[Enthusiast]

25. Thank you, jotsy.

The scales of justice have been askew since Bush was awarded the presidency in 2000. It was bad enough before.

[jotsy]

27. Saw a youtube video the other day about the adventures of

JP Morgan and grandpappy Bush and the coup they tried to usher against the populist sensitive presidency of FDR. The surprise I got is how long the corporatocracy has been working to make government powerless.

<http://www.youtube.com/watch?v=UXGUgFXoRu4>

Reboot!

[Steely_Dan]

26. So My Next Question...

I went to bed last night thinking about all of this. I reread the entire thread and the more I think about it, the more pissed I get. While there are specific reasons given with regard to the so-called "bailout" money, there also seems to be plenty of blame to go around.

If, in fact it is true that banks needed to get solid and secure before they started helping out the little man, why hasn't the Obama Administration framed that argument and delivered that message often, loudly and clearly? I follow politics more than the average guy...I had to ask the right questions here just to get an answer.

If, on the other hand, there is much under-the-table dealings and agreements with regard to the bailout money, why aren't people in the streets over this? The subject, even here at DU is not mentioned nearly enough considering it appears to be the hub of the crisis wheel.

At this point, I'm pretty pissed. And as someone mentioned earlier, the banks are supposed to start lending out this money or they will be penalized. I suppose I need to research this.

Still, I'm amazed how little attention the details of this bailout has received.

-P

[girl gone mad]

29. here..

http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=389&topic_id=5321337


Many of us have talked about it and talked about it and talked about it.

Lending was never in the cards. Banks' sole fiduciary duty rests in returning value to the shareholders. It never made sense that we were going to recapitalize the banks so that they could turn around and lend more money to over-indebted consumers and businesses.

There is no return to what was. We had a chance to reign in these predators, but we failed. They control much of our government, our central banking system, our treasury, our livelihoods.

It's kind of crazy when you start rooting for a solar superstorm or Russian hackers to put a stop the relentless pillaging.

[Steely_Dan]

30. Could You Expand On This Point...

I appreciate it.

There is no return to what was. We had a chance to reign in these predators, but we failed. They control much of our government, our central banking system, our treasury, our livelihoods.

-P

[branders seine]

28. the true purpose of the bailout had nothing to do with ensuring that banks loaned money

it was just theft.

Note that the way the banking system is rigged (it is an entirely corrupt scam), a bank doesn't need to steal a trillion bucks and keep it. It can just get corrupt politicians to help steal it, use it for a few months, magically turn it into a few trillion bucks, use a tiny scrap of that to buy off the White House and Congress to ensure that the scam keeps going, and then "pay back" the original trillion bucks bailout.

[Steely_Dan]

32. Is It Too Late???

Is there no going back?

[branders seine]

34. maybe with a time machine

1945, 1947, 1963, 1972, 1978-80, 2000


would be good years to pop in, make a couple of "adjustments" and then pop back out.

[mdmc]

31. This was to help the banks

not main street..

[Steely_Dan]

33. Of Course...

That's not what we were sold.

[mdmc]

39. this IS what we were sold

we were told that we could either bail out the banks on the banks terms, of face an end to our economy. Bush was very clear - we have no choice - these crooks just about killed us and we need to bail them out or they will kill us..

imho

[Raineyb]

37. Because the banks wanted the money with no strings attached and our politicians always do

what their owners tell them to.

[On the Road]

38. It May be a Matter of Hindsight

The economic landscape and sentiment are very different now from the time that vote was taken.

TARP was introduced out a well-founded panic that the entire financial system would collapse. It was not designed as a tool for the banks to reignite the economy. I don't even think it was uppermost in the mind of the banks.

Looking back at it, I do think it would have been a good idea to put in provisions on lending. They could still have done it with the most recent bill. But restrictive lending had not been a problem up to that point -- in fact, the problem had been overly lax lending.

As far as still holding on the money, there are still TARP loans outstanding, but most of it has been repaid.

Making loans is how banks make money. Not making loans is counter to their long-term interests. Banks are obviously deciding that the applications they are seeing are not good risks. Forcing loans that may not be good risks has its own drawbacks. The problem is that this very restriction is causing the recovery to stall.

I do think the Feds could address this in some way, but the approaches all have pitfalls and all have to clear Congress. If the recovery accelerates, it may become a moot point. Otherwise, the government will have to consider new measures.

[MyNameGoesHere]

40. But going after institutions that hoard money would be very

Venezuelan. Now that couldn't be could it?