US Government Nationalizes Loses While Privatizing Insider Bank Gains

Our government has debased the economy to remove moral hazard for a handful of banking insiders. This type of activity occurs frequently in Third World countries and is met with real rage. Where is it here?

If you look at what the government, between Paulson and Geithner, have done with the banks, you will see:

1) they stabilized the banking system through bankstopping (guaranteeing) the losses,

2) they funnelled money to the banks at no cost so that they could show profits (first through AIG, then through TARP and TALF),

3) they leveraged hedge funds to buy the distressed assets from the banks,

4) they changing accounting rules to allow banks to avoid further asset writedowns that would and should be inevitable as they try to cope with the fall in commercial real estate

5) they have rationalized the entire process through then having a so-called stress test that shows that the banks are all healthy.

Of course the banks are healthy.  The government removed moral hazard.  The institutions that held the bank stock and debt should have been wiped out, but the government stepped in and made sure that it didn't happen.  They turned these troubled banks into engines of growth and money printing presses while nationalizing the down side and bankrupting the country.

And, then, as if that's not enough, we have situations like Stephen Friedman who was the Chair of the Federal Reserve Bank of New York and a director and shareholder of Goldman Sachs at the same time.  Does anyone doubt that this guy and even Paulson were conflicted when the gave money to AIG and installed a head of AIG who was also a Goldman shareholder to direct most of the money to cover Goldman's exposure to AIG at a $1 for $1 basis?

In a Third World country, this happens all the time.  How can it happen in a Democracy such as ours? 

 

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to financial literacy and bank transparency. Since co-founding this website in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

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Comments

  • DanS

    May 08, 2009

    Excellent argument. Very logical.

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