Gretchen Morgenson:This Bailout Is a Bargain? Think Again

[TomClash]

. . . .

A major factor missing from Treasury’s math is the vast transfer of wealth to banks from investors resulting from the Fed’s near-zero interest-rate policy.

This number is not easy to calculate, but it is enormous. The Fed’s rock-bottom interest-rate policy bestows huge benefits on banks because it allows them to earn fat profits on the spread between what they pay for their deposits and what they reap on their loans. These margins are especially rich on credit cards, given their current average rate of 14 percent and up.

The losers in this equation are savers and investors, especially people on fixed incomes. “All interest-sensitive investors have been transferring what they should be receiving to Uncle Sam and the banking industry,” Mr. Whalen said. “And you are talking about a lot of money.”

Then there are the losses suffered by the Federal Deposit Insurance Corporation when it has to take over faltering institutions. The estimated cost to its insurance fund is $6.65 billion for the 43 banks that have failed this year. The fund is financed by bank fees.

Treasury’s recent figures also don’t reflect hits that may result from loss-sharing arrangements the F.D.I.C. set up with healthy banks to persuade them to take on the assets of failing ones. How much the government might have to swallow as part of that program is unknowable now, but Mr. Whalen said he expects such losses to hit $400 billion when all is said and done.

There are also costly consequences of our government’s relatively easygoing approach to bank assistance, a practice Mr. Whalen calls “extend and pretend.”

“The refusal of the Washington political class to address the issue of bank insolvency quickly via restructuring and recapitalization has extended the economic recovery process by years,” he said. “Lending will continue to shrink and real economic activity is suffering. The cost of ‘extend and pretend’ goes into the trillions of dollars of lost economic activity.”

more . . .

http://www.nytimes.com/2010/04/18/business/economy/18gret.html?ref=business

[geckosfeet]

1. This is what we should all be outraged at. The fed lends to banks, mortgage houses,

and other financial institutions (either directly or through proxies (yet another shell game scam)) at near zero.

They turn around and loan end users (us) or some intermediary the money at 4, 5, 10,12, 14%.

The FED then gets it's money back, and prints even more due to increased demand.

In essence, the FED is subsidizing the money/financial industry on our backs. Their policy then, in action if not words, is to allow Wall Street to shake down Main Street with a wink and nod.

[TomClash]

2. I missed this point

when rates were going to zero and mortgage rates were dropping. But it's true the spread is much larger and that is a huge windfall to the banks.

The banking industry hates her.

[geckosfeet]

4. Not a point dwelled on in the article. But it is/should be the white elephant in every discussion

regarding the Federal Reserve bank and the people.

The FED feeds Wall St. It feeds Wall St. our money.

[sendero]

3. Exactly..

.. myself and everyone else that saved their money instead of going into debt is getting ripped of for hundreds or even thousands of dollars a month by the ZIRP.

Lots of seniors who are trying to live off their savings no long can.

Zero interest is as untenable as 20% interest, both are damaging just to different people.

This is nothing but BANK BAILOUT, they get to borrow money for essentially nothing and lend it at whatever. And I foot the bill.

[TomClash]

5. You have plenty of company

Including me - I suppose we were fools - but I could never have done it any other way.

[girl gone mad]

6. It's even worse than this.

We're actually paying the banks to borrow money now..

http://www.nakedcapitalism.com/2010/04/jpmorgan-gets-paid-to-borrow-271-billion-from-the-government.html

[TomClash]

7. They have it tough . . .

. . . pity them. :puke: :sarcasm: