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Pissing away $700 billion

by NBBooks Thu Oct 30th, 2008 at 01:29:48 PM EST

Also posted at DailyKos

Half of the bank bailout is being paid out as dividends ! These bastards are shameless!

U.S. banks getting more than $163 billion from the Treasury Department for new lending are on pace to pay more than half of that sum to their shareholders, with government permission, over the next three years.

And in case you missed it two weeks ago: one of every ten dollars of the "bailout" is being used to pay bonuses! That's right - the bastards are getting $70 billion in bonuses for destroying the financial system and wrecking the economy.

Joe Nocera reported in The New York Times on an Oct. 17, internal conference call for senior employees of JPMorgan Chase, in which a Morgan Chase employee had the bad grace to ask,

"Chase recently received $25 billion in federal funding. What effect will that have on the business side and will it change our strategic lending policy?"

That would be a key question, wouldn't it? Afterall, the whole purpose of the $700 billion bank rescue was to unfreeze the credit markets and get banks lending again.

Someone taped the conference call, and Nocera was allowed to hear it. Read carefully the reply of Morgan Chase chief executive, Jamie Dimon:

"Twenty-five billion dollars is obviously going to help the folks who are struggling more than Chase," he began. "What we do think it will help us do is perhaps be a little bit more active on the acquisition side or opportunistic side for some banks who are still struggling. And I would not assume that we are done on the acquisition side just because of the Washington Mutual and Bear Stearns mergers. I think there are going to be some great opportunities for us to grow in this environment, and I think we have an opportunity to use that $25 billion in that way and obviously depending on whether recession turns into depression or what happens in the future, you know, we have that as a backstop. . . . We would think that loan volume will continue to go down as we continue to tighten credit to fully reflect the high cost of pricing on the loan side."  

And I'll add a link here about how many banks getting bailout money are using the funds to buy up other banks. Note the observation that the bailout is all about consolidation. Haven't we learned yet that too big to fail is too big to exist?

So the $700 billion rescue of the financial system is being pissed away. And what's starting to happen in the real economy is frightening. The economic news this morning is that U.S. gross domestic product shrunk by three tenths of one percent in the third quarter. Hidden in the GDP numbers is a shocking decline of 14.1 percent in sales of durable goods. The havoc being wreaked on the manufacturing sector is appalling - and it's the manufacturing sector that we desperately need to rebuild, if we are to stop consuming more than we produce.

Nondurable goods dropped 6.4 percent, and real personal consumption expenditures fell 3.1 percent.

But those are the official numbers. The reality is much worse.

In Unapologetic economic stupidity, Richard Daughty,, writing as the Mogambo Guru, cites the most recent statistics from DeepCaster.com and shadowstats.com: "Real US Consumer Price Inflation is running at around 13% annually, Real US Unemployment at about 14.5% annually, and Real US GDP is at a negative 2%, while real M3 (monetary creation) is running at 14% annually according to the quite credible calculations of  shadowstats.com." (Unfortunately, a subscription is required for both DeepCaster.com and shadowstats.com, so I am not able to furnish a more direct link.)

Daughty also notes that while the U.S. government has now sunk into over $10 trillion in debt, interest payments are being held down by artificially low interest rates. In fact, he states that "the sustainability of the government, consumer spending and the economy rests on the continuation of artificially low interest rates." Right now, 10 cents of every tax dollar collected is required just to pay the INTEREST on the debt. Now think about THIS: The yield on a 10-year Treasury note right now is 4.01%, but the historical average, going back 46 years, is 7.04%. Which means that we can expect just the interest on the U.S. government debt, never mind paying back the principal, to reach nearly 20 percent of all government revenues collected.

Obama can NOT do anything on his own. He will be facing the hordes of angry white men stirred up by the likes of Limbarf and O'Reilly. He will be facing the entrenched power of oligarchical wealth - insurance companies, financial companies, hedge funds, big oil, big pharma, and the Reps and Senators they own, both Dem and Rethug. He will be facing a judiciary packed these past eight years with the worst conservative hack ideologues.

And he will be surrounded by economic advisers who are part of the problem. Dismay and disgust has often been voiced here on the blogosphere over who Obama has selected as economic advisers. The sad fact is that Obama voted for this bailout, despite a raging flood of anger and opposition, by bloggers as well as many others. Obama ignored us then. But he's not going to be able to ignore reality. He was wrong, and we were right. The problem is that a lot of innocent people are going to get hurt by his being wrong.

Folks, our work is just beginning.

Right now, 10 cents of every tax dollar collected is required just to pay the INTEREST on the debt. Now think about THIS: The yield on a 10-year Treasury note right now is 4.01%, but the historical average, going back 46 years, is 7.04%. Which means that we can expect just the interest on the U.S. government debt, never mind paying back the principal, to reach nearly 20 percent of all government revenues collected.

Paying 10% of tax revenue for interest is little in international comparison. Of course this number uses the flawed unified budget instead of the general budget. Accounting correctly for the payroll tax trust funds the interest payment is ~25% for the US federal gov't. Of course the trust funds can be canceled by slashing the payroll tax and increasing the income tax, stripping thereby the people, who would otherwise gain  them by paying into the trust fund, from the entitlements corresponding to the payroll taxes, but that would be kind of fraudulent.

Historically interest rates were higher, but inflation as well. I would guess, that the interest rate on the debt is more likely to go down in the close future than up. The principal on the other hand will go up at quite high rates. One trillion within a year for the general budget is probably not far off.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Thu Oct 30th, 2008 at 03:16:16 PM EST
Some of us (such as yours truly) have argued that the bailout would do nothing to fix the economy because the problem was insolvency, not illiquidity, and that it was therefore just a big boondoggle for outfits like Chase.  Many who believed liquidity was the problem nevertheless opposed the bailout as structured because too much of it was likely to go to recapitalization and acquisitions.  Surprise, surprise, both groups were right.

Yes, the work is just beginning.  The US financial house needs swept out with napalm.

by rifek on Thu Oct 30th, 2008 at 03:38:25 PM EST
The goal of the bail-out was to loot the US treasury one last time, in grand fashion before an Obama administration gets in and closes the tap (somewhat?).

So, how'd they do?  Pissing money away?  Not if it went where they originally intended.  But they didn't tell us this is what would happen?  What, tell you the truth for a change?

Think of us as cattle and they're the butchers.  How they doing so far?   Change of metaphor.  Have they killed the goose which has been laying golden eggs for them?  What good is an unemployed goose?

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Thu Oct 30th, 2008 at 04:24:05 PM EST
Well said. In particular the inflation stats that you cite - based on use of the standard CPI formulae pre-1968 - are class-targetted. The poorer sector spends a much higher portion of income within the categories that are excluded nowadays due to "volatility" (food and fuel, primarily).

And the current real inflation rate is just a snapshot. The trend - the skew - has been there for more than two decades.

Almost all of the other important 'indicators' of economic 'health' are based in 'real' money terms. Higher inflation means that, for example, 'real' GDP is lower than reported. Perhaps you could say that the GDP for the broad masses is lower; while GDP for the super-rich - based on the 'product' of financial dealings has been high - so that, overall, official GDP is an average of the two factors.

On the other hand, as Jerome and others have reported recently, the profits of the financial corporations involved in these ventures are less than the reported write-offs for similar, recent time periods. But the super-wealthy already have 'theirs' via dividends, salaries, bonuses, and capital gains due to sales to the next line of suckers in the derivatives, futures, etc. Ponzi schemes.

THE Twank - you want action. Stay tuned. We'll let the election dust settle a bit, then there may be some particular actions/organizations of interest to you. Meantime, I recommend that you go back through the archives for Chris Cook's diaries in particular. The terms are a little obscure sometimes, but they - like many things - become more accessible via redundancy. The concepts are the important parts in any case.

paul spencer

by paul spencer (paulgspencer@gmail.com) on Fri Oct 31st, 2008 at 01:01:28 AM EST

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