The Fake Math and Unquestioned Assumptions of Bailing Out Banksters.

So far the US government has spent about $2 trillion bailing out Goldman Sachs, AIG, General Motors  and  other politically well-connected businesses and banks. 

We’ve been told that these businesses are TBTF (too big to fail).  If one these did fail then it would destroy the rest of the economy.  OK, I’ll buy that it would be catastrophic to their employees and their shareholders, but it’s not at all certain that all the rest of the US would share their fate.   Even if we do accept that their TBTF status makes them able to hold the rest of the entire US hostage, then our federal regulators have been criminally negligent in not breaking them up into smaller, competing pieces.

What should we make of the recent well-publicized payback from GM to the US treasury for the bailout?  We’ve seen the ads on TV where the head of GM was crowing that the taxpayers were paid back PLUS INTEREST for their loan.  The simple explanation is that it’s flatly a lie that all of the money was paid back.  Only a tiny part was paid back, and the interest for that part came from the rest of the bailout, not from some miraculous turnaround of a bloated and inefficient company.  

Consider this analogy:  I ask you to loan me $100, but we’re going to chop it up into 10 different IOU’s of $10 each.  Then I quickly pay you back $11 for one of the IOU’s, then I go on TV saying how I paid back every penny plus interest (neglecting to mention the other 9 IOU’s).   I still have $89 of yours in my pocket, and maybe I’ll get around to paying that back some day, if everything works out well in my favor, but don’t hold your breath.   Yeah, that’s exactly how the GM bailout worked.  The taxpayers are still waiting and they’ll continue to wait a very long time, but by then people will have forgotten about this fraud. 

Another bogus part of the accounting is that our masters in Washington are only counting the benefits (saved jobs and saved shareholders) of their brazen and unprecedented transfer of wealth from the treasury to banks and large corporations.  They’re not counting all of the lost jobs because private people don’t have that $2 trillion to spend and buy things from other, more competitive businesses. 

 Of course supporters and apologists of the bailouts will say that the $2 trillion wasn’t taken from anyone, that it was borrowed money or  “created”  by the US Federal Reserve via quantitative easing.  Thinking about it a little while reveals that borrowing merely transfers this loss of buying power from the present to the future, plus interest.  If a counterfeiter creates new money and passes it around, it’s widely accepted that he’s stealing small amounts from everyone else because he has diluted the value of the currency.  The FED is doing exactly the same thing by creating electronic records of money.   Either borrowing or creating money has the same effect of destroying jobs, but this is lost in the calculus used to justify the transfer of money to banksters.