Posts tagged: Timothy Geithner

Banks, government bailout scheme sticks you with the bill

(150) Ever wonder how the United States finances such a huge debt? How about keeping interest rates artificially low, consumer savers be damned.

If interest rates were even close to where they should be, about five percent, the Federal Government would be broke.  Every dollar of Federal taxes collected would go to pay interest on the debt.  No bucks for defense, education, social security, medicare, research, National Parks.  Nothing.

Did our government and the largest banks make a bargain in 2006 or 2007?  Were the banks allowed to rape the US Treasury to help smother the cost of the debt?  Did the government, directly or by turning a blind eye, then allow the banks to rip off consumers?

In any case, President Bush began the unholy partnership with banks and his successor, Barack Obama, continued to implement the agreement.  What else could explain that throughout modern times the Secretary of the Treasury, Chairman of the Council of Economic Advisers and other high financial appointed leaders were jobs continually filled by executives from the same two or three houses on Wall Street, regardless which Party controlled the White House.

Timothy Geithner did not use Wall Street’s revolving door, but his conduct, at times, was just as suspicious.  Under Bush, Geithner was president of the Federal Reserve Bank in New York, then Obama grabbed him for Treasury Secretary in 2009.

Geithner told the Los Angeles Times “the bailouts were about saving the economy, not the big banks. If you want to protect the economy from a failing financial system, you have to get the system functionally working. That requires you to do things that look like you are helping the people who caused the crisis.”

Apparently, the bailout included keeping heads of the big banks out of jail and letting them continue to draw their obscene paychecks.

Financial crimes too big to hide?  Our government filed feeble charges against the corporation. Banks could not wait to pay miniscule (by comparison) fines while, of course, not admitting guilt.  America waited for a “perp walk” that never happened.

Banks knew the government was going to do everything possible to hold down interest rates, minimizing the cost of the debt and preventing outright default.  Banks, however, could not survive on lending that only yielded a fraction of a percent.

Some of the largest banks were allowed to use free government money to take over smaller and weaker banks.  Others, rather than use the government handouts to right wrongs, used the money to buy Treasury bills that paid interest.  Still others used the money to redeem stock, making the remaining stock of higher value.

This cozy relationship between banks and politicians had its victims. People about to enter retirement and live off their savings got a jolt. Some worked past their time.  Then there were the “Joe Citizens” with stock in banks taken over or General Motors debt or sliced and diced bank mortgages.

Banks stroked small businesses. Advertising (with a “wink”) they had money to lend, banks approved fewer loans. The collapsing economy caused a massive write-down of collateral assets. Most banks in Western PA, according to Pittsburgh Business Times, reported a decrease in loans but an increase in profits during the first two quarters of this year.

How did that happen? The answer is “income from fees.”

These same customers who were getting returns on their savings in the fraction of a percentage point, had to be screwed further.  Banks needed the income to make up for lack of profit from interest spreads in lending.  Our politicians, muttering under their breath, said “Okay.”

Deposit a check drawn on another bank. Wait a week to use funds. Car payment due date this month falls on a Sunday? Pay it Friday before or suffer a large late fee. “Gotcha” was a new entry in the financial dictionary.

This unholy alliance was not across the board.  Bank of America, Goldman Sachs, A.I.G. and Chase slithered from one financial debacle to another.  J P Morgan, on the other hand, who bailed customers of Bear Stearns without government assistance and eschewed the bailout, gets raped with fines.

BOTTOM LINE: It is clear no one is going to thank you for your valuable help in righting the economy. Are victims of rip offs ever shown gratitude?  Only if the pillagers are done with you.  The business model for the financial industry continues to undergo change.