March 25, 2012
We’ve previously documented the fact that bailouts of the big banks are continued in stealth mode up to the present day.
True, the banks claim they’ve repaid the Tarp bailout funds … but nearly half of the banks “repaid” such bailout funds by borrowing from other government bailout funds (and the rest could only repay money by fudging their accounting and using stealth bailouts which are are a little harder to detect).
Indeed, the government has decided on perpetual bailouts for the too big to fail banks.
Some of the ongoing stealth bailouts include:
There are so many rivers and streams of bailout money going to the big banks, I will start with the specifics and end with broader monetary policies.
***
The TARP bailout is peanuts compared to the numerous other bailouts the government has given to the giant banks [and even the numerous rounds of quantitative easing are a drop in the bucket compared to stealth bailout programs].
And I’m not referring to the $23 trillion in bailouts, loans, guarantees and other publicy-disclosed programs that the special inspector general for the TARP program mentions. I’m talking about more covert types of bailouts.
Like what?
Mortgages and Housing
*** PhD economists John Hussman and Dean Baker, fund manager and financial writer Barry Ritholtz and New York Times’ writer Gretchen Morgenson say that the only reason the government keeps giving billions to Fannie and Freddie is that it is really a huge, ongoing, back-door bailout of the big banks.
Many also accuse Obama’s foreclosure relief programs as being backdoor bailouts for the banks. (See this, this, this and this).
Commercial Real Estate, Mortgage Backed Securities, Cars and Student Loans
Some pretty sharp writers allege that the government is also secretly bailing out the banks by supporting everything from commercial real estate, to mortgage-backed securities, car loans and student loans (and don’t forget McDonald’s and Harley).
Derivatives
The government’s failure to rein in derivatives or break up the giant banks also constitute enormous subsidies, as it allows the giants to make huge sums by keeping the true price points of their derivatives secret. See this and this.
Foreign Bailouts
The big banks – such as JP Morgan – also benefit from foreign bailouts, such as the European bailout, as they are some of the largest creditors of the bailed out countries, and the bailouts allow them to get paid in full, instead of having to write down their foreign losses. So when the Fed bails out foreign banks, it is a bailout for American banks as well.
Toxic Assets and Accounting Shenanigans
The PPIP program – which was supposed to reduce the toxic assets held by banks – actually increased them (at least in the short-run), and just let the banks make a quick buck.
In addition, the government suspended mark-to-market valuation of the toxic assets held by the giant banks, and is allowing the banks to value the assets at whatever price they desire. This constitutes a huge giveaway to the big banks.
As Forbes’ Robert Lenzner wrote recently:
If you stop and think for a moment, it is obvious that failing to prosecute fraud is a bailout.
Nobel prize-winning economist George Akerlof demonstrated that if big companies aren’t held responsible for their actions, the government ends up bailing them out. So failure to prosecute directly leads to a bailout... Read much more @Source
Source: Washington's Blog
Open-Ended Bailouts Are ContinuingWe’ve previously documented the fact that bailouts of the big banks are continued in stealth mode up to the present day.
True, the banks claim they’ve repaid the Tarp bailout funds … but nearly half of the banks “repaid” such bailout funds by borrowing from other government bailout funds (and the rest could only repay money by fudging their accounting and using stealth bailouts which are are a little harder to detect).
Indeed, the government has decided on perpetual bailouts for the too big to fail banks.
Some of the ongoing stealth bailouts include:
- Obama’s erroneously-labelled “jobs” act (and see this, this and this)
- The mortgage settlement (and see this and this; indeed, settling prosecutions for pennies on the dollar is always a backdoor bailout)
- The Transaction Account Guarantee program, an extension of FDIC insurance coverage to all transaction balances
- And the fed is going easy on the big banks in many other ways as wells
There are so many rivers and streams of bailout money going to the big banks, I will start with the specifics and end with broader monetary policies.
***
The TARP bailout is peanuts compared to the numerous other bailouts the government has given to the giant banks [and even the numerous rounds of quantitative easing are a drop in the bucket compared to stealth bailout programs].
And I’m not referring to the $23 trillion in bailouts, loans, guarantees and other publicy-disclosed programs that the special inspector general for the TARP program mentions. I’m talking about more covert types of bailouts.
Like what?
Mortgages and Housing
*** PhD economists John Hussman and Dean Baker, fund manager and financial writer Barry Ritholtz and New York Times’ writer Gretchen Morgenson say that the only reason the government keeps giving billions to Fannie and Freddie is that it is really a huge, ongoing, back-door bailout of the big banks.
Many also accuse Obama’s foreclosure relief programs as being backdoor bailouts for the banks. (See this, this, this and this).
Commercial Real Estate, Mortgage Backed Securities, Cars and Student Loans
Some pretty sharp writers allege that the government is also secretly bailing out the banks by supporting everything from commercial real estate, to mortgage-backed securities, car loans and student loans (and don’t forget McDonald’s and Harley).
Derivatives
The government’s failure to rein in derivatives or break up the giant banks also constitute enormous subsidies, as it allows the giants to make huge sums by keeping the true price points of their derivatives secret. See this and this.
Foreign Bailouts
The big banks – such as JP Morgan – also benefit from foreign bailouts, such as the European bailout, as they are some of the largest creditors of the bailed out countries, and the bailouts allow them to get paid in full, instead of having to write down their foreign losses. So when the Fed bails out foreign banks, it is a bailout for American banks as well.
Toxic Assets and Accounting Shenanigans
The PPIP program – which was supposed to reduce the toxic assets held by banks – actually increased them (at least in the short-run), and just let the banks make a quick buck.
In addition, the government suspended mark-to-market valuation of the toxic assets held by the giant banks, and is allowing the banks to value the assets at whatever price they desire. This constitutes a huge giveaway to the big banks.
As Forbes’ Robert Lenzner wrote recently:
The giant US banks have been bailed out again from huge potential writeoffs by loosey-goosey accounting accepted by the accounting profession and the regulators.And as one writer notes:
They are allowed to accrue interest on non-performing mortgages ” until the actual foreclosure takes place, which on average takes about 16 months.
All the phantom interest that is not actually collected is booked as income until the actual act of foreclosure. As a resullt, many bank financial statements actually look much better than they actually are. At foreclosure all the phantom income comes off the books of the banks.
This means that Bank of America, Citigroup, JP Morgan and Wells Fargo, among hundreds of other smaller institutions, can report interest due them, but not paid, on an estimated $1.4 trillion of face value mortgages on the 7 million homes that are in the process of being foreclosed.
Ultimately, these banks face a potential loss of $1 trillion on nonperforming loans, suggests Madeleine Schnapp, director of macro-economic research at Trim-Tabs, an economic consulting firm 24.5% owned by Goldman Sachs.
The potential writeoffs could be even larger should home prices continue to weaken…
By allowing banks to legally disregard mark-to-market accounting rules, government allows banks to maintain investment grade ratings.
By maintaining investment grade ratings, banks attract institutional funds. That would be the insurance and pension funds money that is contributed by the citizen.
As institutional money pours in, the stock price is propped up ….Fraud As a Business Model
If you stop and think for a moment, it is obvious that failing to prosecute fraud is a bailout.
Nobel prize-winning economist George Akerlof demonstrated that if big companies aren’t held responsible for their actions, the government ends up bailing them out. So failure to prosecute directly leads to a bailout... Read much more @Source