"The banks have stolen enough. It's time to take them over."
by Dean Baker
Hold onto your wallets. The bankers are coming bank for more money.
They burned through the $350 billion that we gave them in the first
round of the Troubled Asset Relief Program (TARP) and they are worried
that even the second $350 billion will not be enough money to keep
them solvent. The selective leaks from Treasury tell us that the banks
will need far more money to cover their bad debts.
The latest story is that the banks want to sell us their bad assets at
above market prices, which was the original plan that Treasury
Secretary Paulson proposed, except the banks want to push off their
junk on an even bigger scale. In one version, the government would set
up a Resolution Trust-type corporation (RTC), like we did with the
bankrupt Savings and Loans in the 80s, which would hold all the
garbage and then gradually resell it to the private sector to recover
a portion of what the government paid.
This is a reasonable course, except there is one big difference
between what we did with the S&Ls in the 80s and the leaked plan being
floated. The S&Ls were taken over by the government and then resold to
the private sector. These were bankrupt institutions that were put out
of business. The stockholders were wiped out, which is what is
supposed to happen to stock holders when their company goes bankrupt.
But this is not what happens in the plan being discusses. In this
plan, the taxpayers just do the banks the great favor of paying above
market prices for their junk so that we can relieve them of the burden
of their past mistakes. The taxpayers get to eat the losses and the
bank executives and their shareholders go on their merry way.
These folks are not market fundamentalist types. The Wall Street view
of the world, and apparently the view of at least some people in the
Obama administration, is that the government always is there to help a
bank or banker in need.
The idea that we would give one more penny to this crew that has
wrecked the economy should make taxpayers furious. There is a
legitimate public interest in keeping the banks operating; a modern
economy needs a well-operating financial system. But, there is zero
public interest in rewarding shareholders and overpaid banks
These executives bankrupted their banks and brought the economy down
with them. They belong in an unemployment line not collecting
multi-million dollar paychecks in their designer office suites.
The obvious answer is to take over the insolvent banks, just as we did
with the insolvent S&Ls. The government should form an RTC as we did
in the 80s, which would dispose of the assets over time, collecting as
much money as possible for the government. The bankrupt banks would be
restructured and sold back to the private sector as soon as their
books were straightened out. The point of the exercise is not have the
government run the banks, the point is to keep the financial system
running without giving even more money to the richest people in the
This is the only reasonable solution to the mess that the bankers have
created. The other solutions are simply efforts to transfer dollars
from hardworking taxpayers to overpaid and incompetent bank
executives. It is hard to believe that anyone would take it seriously,
if not for the enormous political power of the Wall Street gang.
It's too bad that the Republicans' anger over giving tax breaks to
workers who did not pay income taxes does not extend to giving tax
dollars to Wall Street banks who have wrecked our economy. Where are
the anti-government conservatives when we need them?