U.S. Big Bank Bailout Costs Trillions More than Stated

Politics / Credit Crisis Bailouts
May 15, 2010 - 08:45 AM

By: Washingtons_Blog

Granted, the $700 billion dollar TARP bailout was a massive bait-and-switch. The government said it was doing it to soak up toxic assets, and then switched to saying it was needed to free up lending. It didn't do that either. Indeed, the Fed doesn't want the banks to lend.

True, as I wrote in March 2009:

The bailout money is just going to line the pockets of the wealthy, instead of helping to stabilize the economy or even the companies receiving the bailouts:

Bailout money is being used to subsidize companies run by horrible business men, allowing the bankers to receive fat bonuses, toredecorate their offices, and to buy gold toilets and prostitutes

A lot of the bailout money is going to the failing companies'shareholders

Indeed, a leading progressive economist says that the true purpose of the bank rescue plans is "a massive redistribution of wealth to the bank shareholders and their top executives"

The Treasury Department encouraged banks to use the bailout money to buy their competitors, and pushed through an amendment to the tax laws which rewards mergers in the banking industry (this has caused a lot of companies to bite off more than they can chew, destabilizing the acquiring companies)

And as the New York Times notes, "Tens of billions of [bailout] dollars have merely passed through A.I.G. to its derivatives trading partners".

In other words, through a little game-playing by the Fed, taxpayer money is going straight into the pockets of investors in AIG's credit default swaps and is not even really stabilizing AIG.

But the TARP bailout is peanuts compared to the numerous other bailouts the government has given to the giant banks.

And I'm not referring to the $23 trillion in bailouts, loans, guarantees and other known shenanigans that the special inspector general for the TARP program mentions. I'm talking about more covert types of bailouts.

Like what?

Guaranteeing a Fat Spread on Interest Rates

Well, as Bloomberg notes:

“The trading profits of the Street is just another way of measuring the subsidy the Fed is giving to the banks,â€