Bailing out the banks

This is rather amusing really:

The current estimate of the eventual loss that taxpayers will be left with from the Troubled Asset Relief Program (TARP) is $60bn, according to a report from the watchdog for the programme.

\”It is a widely held misconception that TARP will make a profit,\” said Christy Romero, the inspector general for TARP.

OK, so we\’re going to get all sorts of shouting that we\’ve lost money bailing out the banks therefore neoliberalism blah blah.

But that\’s not quite true:

The White House estimates that the capital injections into the country\’s banks have reaped a profit of $205bn for taxpayers, but has forecast an overall loss for a bail-out that was engineered by former US Treasury Secretary Henry Paulson.

Bailing out the banks made tonnes of money.

Taxpayers are still owed $119bn from TARP, with the majority of that still tied up in the rescue of insurer AIG, carmaker General Motors and mortgage lender Ally Financial.

Would anyone like to bet that in the end, once everything has been totted up, it\’ll be GM which is the only loss in the portfolio?

Which would be a very different story from neoliberalism blah blah, wouldn\’t it?

11 comments on “Bailing out the banks

  1. Coal mines no longer economically viable: close coal mines, tell coal miners that “that’s the free market for you, sorry guys”.

    Banks no longer economically viable: give them however much money it takes to prop them up, tell everyone else who has to pay for it, “that’s the free market, sorry guys”.

    Whatever we have, it may be “neoliberal” but it’s fuck all to do with a free market. The free market spoke in ’08, and tried to destroy the banks, just like the coal mines. They should have been closed down, and their workings allowed to flood. We could at least have enjoyed watching the rozzers beat a few protesting banksters black and blue.

    If we ever want a free market system, if we ever want economic and social liberty, or if we at least want some sort of “capitalism” to survive, one day we are going to have to rid ourselves of the current system of banking. Historians will record that it was a tragedy that this wasn’t the time we grasped that nettle. A bank that cannot be allowed to fail isn’t a bank. It’s a protection racket.

  2. That’s a really excellent talk. The point where he discusses the “shell game” (his words) by which the bailouts are paid back, and who is really paying them back, is particularly important.

  3. Re GM – I believe I am right in saying that its bailout was nothing to do with cars, but arose from toxic loans and derivatives in its financial services division. So no, I wouldn’t bet on that, actually, Tim. I think the one most likely to generate a loss is AIG. Both the others have an asset base.

  4. with no expertise in this matter, I would second Frances there, AIG is probably the real stinker – they not only are exposed to the losses of others via insurance policies, but their own considerable assets took a considerable hammering.

  5. Frances (#4), didn’t GM’s financial division fail because it was being used to subsidise car sales?

    As I read it, the car division would have collapsed years ago if its finance division hadn’t allowed it to sell cars on free credit to people who couldn’t afford to pay it back.

  6. But yes, I wouldn’t be surprised to see AIG end up being loss-making for the bail-out as well.

  7. Ian B – “Banks no longer economically viable: give them however much money it takes to prop them up, tell everyone else who has to pay for it, “that’s the free market, sorry guys”.”

    I don’t think the banks should have been bailed out, but I think there is a difference here with the coal mines – the banks are otherwise viable. They made some bad decisions. So as long as the bailout comes with a complete screwing of the shareholders, that is a reasonable decision. For the government to take over the banks, nurse them back to health and then sell them off later, is a sensible decision. It protects the good borrowers and all the depositors. And the share holders who should have been looking at what the management was doing lose their money.

    You can’t do that with a coal mine. Or at least they tried, it is just that coal is not a viable industry any more.

    The problem is that they did not purge the management. Those who made those decisions should have been retired.

  8. I have now done my homework. Ally is of course the old GMAC….so apologies, my original comments about toxic loans etc. were actually about Ally not GM. I really need to keep up – didn’t know about the name change.

    Thomas, yes, you’re right. But GM has done very well since its bailout so I’m still not convinced it will leave a loss.

    Richard, wasn’t cheap lending to people who couldn’t afford it one of the major causes of the whole crisis? So Ally was doing duff car loans while others were doing stupid mortgages. It’s all the same in the end.

  9. SMFS-

    It depends on your definition of “viable”. The current banking system doesn’t have a long-term sustainable business model. The ’08 crash was the collapse of it. It has only been saved by government channelling taxpayers money into the banks in ways that few understand, to correct their balance sheets.

    In time, it will crash again, and the bankers will be standing there with the gun to the head ofthe rest of us, saying “there will be no cash in the cashpoints on Monday morning unless you bail us out”.

    That’s not “viable”.

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