I think I know why Paulson et al. are shoveling tons of cash to banks and zero to consumers

[closeupready]

the point has been made here several times that the burden of bailing out these banks, PER TAXPAYER (i.e., not counting children, as in the fallacy of breaking it down into 'x dollars for every American') is in the many tens of thousands of dollars, and that were the government to give each taxpayer stimulus checks in the amount of tens of thousands of dollars, consumers would use that money as they used the prior stimulus check, which was to pay down debt. The average American household is, IIRC, about $10,000 in credit card debt. Imagine what would happen to consumer spending if consumers could use that money and make themselves debt-free! The economy would take off like gangbusters, from the ground up.

So why hasn't this ever been considered and won't ever be?

For many reasons, but one big one is probably because the investment banks (from which we have pulled people like Paulson) market credit card receivables as investments. This is sort of how that works: Credit card interest is a cash cow, a reliable stream of income. Investment banks buy up credit card accounts in bulk, crunch the numbers on how much interest is likely to be realized on those accounts, put them together in investment vehicles, and then they sell them to investors, who pocket a portion of the interest. Simple concept.

So what would happen if, say, everyone tomorrow paid off their credit cards? NO MORE INTEREST, i.e., no more credit card accounts to bundle up into investments. It serves investors' interest more if consumers continue to be indebted.

I mean, that's what I smell, but please tell me if you think I have it wrong.

[librechik]

1. boosted by the banks custom of using all payments to apply to interest only

at the front end. You pay for years and years without ever touching the principal.

[closeupready]

2. And Congress simply enables this crookedness.

:mad:

[librechik]

3. they get their cut in campaign contributions

everybody's happy!


ceptin us...

[w4rma]

4. Pretty much. Republicans do everything they can to insert financial middle men in between services

and the users of those services. It's like the Republican Party exists to create greedy, money hoarding parasites on everyone's products. The DLC is exactly the same way in this respect.

[closeupready]

7. Scumbags.

:mad:

[MadHound]

5. Perhaps, but I think that the biggest factor to consider would be inflation

Inject nearly 4 trillion dollars in cash into the economy like that and you're going to push inflation easily into double digits.

[closeupready]

8. Yeah, probably.

But aren't they taking that risk as it is? I just think they should target a different group for assistance - people at the bottom.

[gravity]

6. It is because the government can get their money back from banks

The bailout is more like the equivalent of buying the credit card debt and refinancing it for a lower interest rate. It would certainly be some help, but it isn't going to be a miracle.

[JackRiddler]

12. No, it is because a few banks and corporations control the government.

So they get to say where the money goes. They even get to place a dozen Goldman Sachs and Citigroup executives in almost all the top positions at the Treasury, the "bailout" (financial piracy) agency and the Fed.

The "bailout" means the government covers phantom values the financials created off balance sheet when they wrote mortgage securities and credit default swaps nominally worth 100 times or more the value of the supposedly underlying assets.

The government is unlikely to make the money back from the banks, because the banks' exposures through bets at the casino may exceed even the total value of the world's assets. All they're doing is throwing a few trillion into a hole as a holding action before the Ponzi scheme collapses anyway. The banks are fine with that because they get to replace their fictional "assets" with Federal Reserve currency. (Ultimately the banks will go under and be really nationalized, so why pursue this course? Because in the meantime individual traders, executives and a few well-placed shareholders make off like the bandits they are, and get to keep that as individuals even after the organization succumbs, which tough shit.)

The government would be far more likely to get the stimulus money back from the people than the banks. The people could pay off their debts and thus be free to spend, provide demand, reboot the economy, and thus pay higher tax revenues.

But in that case, the people would no longer be feudal serfs to the lenders. Which is the point of the financial system as it was set up in the last 30 years under Reagan, Bush, Clinton and Bush.

[closeupready]

14. Bingo - you got it, every last word.

That's exactly what this is all about. Wish I could recommend your post.

[RaleighNCDUer]

9. Exactly. The banks profit off our debt.

We are not their ONLY line of profit, be we are a sizeable and reliable one.

It is in the banks' interests to keep us massively in debt. It is the best way to move money from the bottom of the pyramid to the top.

[closeupready]

10. It ought to be prohibited that investment bankers work at the Treasury.

You'd then have a better chance that consumers would get a better deal in terms of policy.

But of course, the banks would make sure no outsider or consumer-friendly economist got those jobs.

[JackRiddler]

13. It ought to be prohibited that military contractors command the military...

Or vice-versa, for that matter. It is a revolving door.

But that's what we're given.

It ought to be "prohibited" that the majority of people don't understand the system that plunders their wealth for the vanishing few, and thus have no chance of ending it, but that's what is, too.

[Laelth]

18. Too true.

That's how we got most of the land here in the Southeastern United States from the Native Americans. We sold them goods on credit, and then took their land as payment when they couldn't pay back the debt. Permanent indebtedness has always been a useful tool of coercion and exploitation.

The United States is a LIBERAL Country.

:dem:

-Laelth

[msongs]

11. are you criticizing the mcCain/obama corporate welfare give away vote again? nt

[Lydia Leftcoast]

15. Makes sense to me

When I started paying down one of my credit cards, they suddenly started flooding me with "convenience checks" and increases in my line of credit.

[formercia]

16. That's why the banks are blood-sucking parasites.

Debt, the gift that keeps on taking.

[Cleita]

17. Sounds reasonable.

Now how do we get them to stop it without cutting off the interest income all at once. It would have to be done gradually wouldn't it?