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Big Bonuses, Round 2

January 11, 2010

It’s bonus time again on Wall Street and, true to form, they will be record high this year.  According to ABC News, the amount will be north of $112 billion for just six of the larger banks.  That is a staggering amount of money but in the end, it is only symptom of a systemic problem with the way banks conduct business.

The banks that plan on paying them are quick to point out they have paid back the bailout money (the Troubled Asset Relief Program or TARP) which is true.  TARP funds are only half of the issue though.  What they don’t talk about is the ability of banks to saddle up to the Federal Reserve for extremely low-interest or even no-interest loans.  The amount of money involved in this action dwarfs the $700 billion bailout.

Many economists state both the bailout and loans kept the economy solvent.  Assuming that is true, it fails to address two key points – the irresponsible action by the banks and Wall Street that created this mess and that they continue to act irresponsibly with the bailout and discount money borrowed.  Rather than reduce so-called “toxic assets,” the reason for TARP, banks used the money to ride out the storm an in some cases, make investments (such as buying other banks).  In effect, the bailout money lined the pockets of investors rather than freeing up credit to consumers and small businesses.

Approximately 7,450 businesses now file for bankruptcy protection each month.  The majority point to lower sales and lack of credit as the two primary reasons.  Logic dictates that money loaned to banks to shore up the economy be used by banks to do just that.  Instead, banks used it to shore up investors.  For banks to pay bonuses in this environment  is a slap in the face of every hard-working American.  Banks fully expect to go back to business as usual and make money hand over fist.  It seems Congress is primed to let them do just that.  Here is another way to look at the bank bonuses, there are around 154 million working Americans this month.  The bonus paid by only these few banks equals about $750 per worker.

Now to really make you mad, I’ll simplify what is going on:  banks make huge amounts of money taking risks, risks fail, banks get bailout to cover losses, banks borrow money at no interest and invest it rather than make loans.  The other shoe is banks entice consumers with low-interest rate credit cards, issue them to anyone with a pulse, set very high limits, wait until the financed amount is high, then jack up the interest rate to a point people can’t pay, force them into default, and drive consumers into bankruptcy.  We loan banks money at little to no interest only to have them loan it back to us with huge interest rates.  Are we really that stupid?  The answer must be “YES!”

We cannot do anything about the bailout now, other than learn from it.  What we can do is regulate the banks to prevent the behaviors that take advantage of both, the system and us.  We learned this lesson after the Great Depression, and then Congress changed the rules allowing Americans to get screwed.  Banks were all to willing to do just that.  We have a right to regulate banks, they only exists because we bailed them out.  Our economy does not belong to banks either; it belongs to us, the American people.  It is time we take it back from Congress and all the special interests that now hold it hostage.  2010 is an election year, we need to make sure Congress remembers that.  You can bet Wall Street used some of that bailout money to see that they don’t.

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