Bailout Success Is the Problem by David Weidner Tuesday, April 13, 2010provided by MarketWatch Commentary: The Cost of Propping Up Wall Street Will Be More Than $89 Billion The good news is that the bailouts worked. The bad news is the bailouts worked. The Treasury Department now estimates the taxpayers' loss on federal bailout programs will be $89 billion, or about a third of the more than $250 billion projected in previous estimates. The new estimate by the Congressional Budget Office puts the loss at less than 1% of gross domestic product and less than 3.2% of GDP the savings and loan crisis cost U.S. taxpayers 20 years ago. American International Group Inc. (NYSE: AIG - News) and Citigroup Inc. (NYSE: C - News) have stabilized to the point the government may try to cash out on its investments in the next year, and General Motors is cruising down a similar path toward an initial public offering that could make the government whole. Though not included in the estimate, Fannie Mae and Freddie Mac (NYSE: FRE - News) continue to pump money into the mortgage market, but the outlays have been less than expected and the government is considering plans to unwind their portfolios. But before either the Bush administration, which began the bailout policy, or the Obama administration, which made it bigger, claims credit, they may want to consider the legacy that these bailouts have created. In the auto industry, the $79.7 billion given to prop up General Motors, GMAC, Chrysler and Chrysler Financial Services has extended an industry favoritism that began with the government loan guarantees extended to Chrysler in 1979. For Detroit, there is no too-big-to-fail legislation being considered, just reassurance that the government will come to the rescue should the automakers stumble again. On Wall Street, financial reform is the topic du jour and yes, creating a provision for banks too big to fail is part of the legislation. But a closer look suggests the powerful bank lobby will spend and threaten lawmakers into submission. Bailed-out Wall Street banks have become more powerful through concentration. Just a few banks, Bank of America Corp. (NYSE: BAC - News), Citigroup, J.P. Morgan Chase & Co. (NYSE: JPM - News) and Wells Fargo & Co. (NYSE: WFC - News) now control a combined $7.34 trillion in assets and $3.57 trillion in deposits -- 56% and 39% of all U.S. assets and deposits respectively, according to SNL Financial. Mortgaging the Bailout These banks have made great strides toward a return to profitability, but much of the profits have come on the backs of customers who are being charged higher interest rates for credit cards and loans. Nowhere are the numbers so striking as in the mortgage market which is supposed to be getting a boost from government-backed loan-modification programs. The main program, Hope Now, reported 148,000 modifications in February. Turns out that was just a tiny part of the problem. Hope Now estimates there are 4 million loans in default. Moreover, the problem may be worsening. The total U.S. loan delinquency rate stood at 10.2% at the end of February and non current loans, which include foreclosures, were at 13.5%, up 21% from the same period last year, according to Lender Processing Services Inc. More than 1.1 million loans that were current at the start of January were at least 30-days past due by the end of February, LPS said. Who stands to gain? Well, banks that have already written down the value of many loans are now pressing ahead with foreclosures to recover assets. The mortgage markets aren't the only place where the squeeze is on. Rates for depositors have sunk to 1% or lower. Credit is still hard to get. Many credit card issuers raised rates in anticipation of the Credit Card Reform Act which went into effect in February. The national average APR is 14.7%, up from 12.55% six months ago. The average APR for consumers with poor credit is now 20.17%, up from 14.29% six months ago, according to CreditCards.com. Who Benefited? In the end, it all fits nicely. A banking system we were told by the likes of former Treasury Secretary Henry Paulson that was too important to Main Street to fail, has not only survived, but become more powerful. It's making its recovery not just through a bailout that's a burden to taxpayers but by squeezing its customers who have fewer choices than ever before. And Detroit? The jury is still out on that one, but time will tell if the bailout was just a one-time phenomenon or the start of a cycle we go through every few years. So yes, the bailouts have worked. They've worked for the beneficiaries: the bankers, the traders, the assembly-line workers and management teams that seem incapable of learning from their mistakes. They've worked for two administrations by keeping money and influence flowing to Washington. And they've worked for those of us who were able to hang on to our homes and our jobs directly or indirectly through the spending. But chances are either you or someone you know isn't getting the benefits. Maybe they're in foreclosure or struggling with credit card debt. For them, there could have been some small comfort in knowing the system was held accountable instead of preserved and made more menacing. You should get more for $89 billion. http://finance.yahoo.com/banking-bu...he-problem?sec=topStories&pos=2&asset=&ccode=
Not only did you not add any opinion of your own, but you forgot to strip out the ads/links from the article. So what should we be discussing here? OMG TEH GOVERNMENTS IZ WASTING TEH MONIES
Really? $89 billion is substantial, but a relatively small part of the federal budget. I'm trying to think of a comparably priced program that had as much impact. I mean for perspective, we're dumping about $100 billion per year in Iraq. I know which program I think worked better.
I agree - $89B to stop the economy from going into a depression (which would cost substantially more) seems like a good investment. And frankly, I expect the $89B number to keep going down as time goes along - there's still a fairly real possibility of getting to break even.
The $89b doesn't include Freddie Mac or Fannie Mae. And the too-big-to-fail are still too-big-to-fail. It would have been nice to get in some comprehensive banking reforms other than just the assurances from the sweet and tender bankers that they'd never never do it again (until the next time).
I thought it was good opinion piece. I don't really have a strong opinion of it. 89b doesn't seem like a ton when compared to initial projections. At the same time you can take the opposite point of view.
Bingo! I am not an economist yet even I can tell you that. Hardly surprising Big Business and the financial industry got off easy here. In America, the big guy always wins (strange when you contrast that to Hollywood's and America's love affair with underdogs). At this point, my attitude is whatever, I am just a small insignificant cog in this gigantic machine.
