Though predictable, this is still infuriating. Taxpayers bailed out the big banks. Now that the crisis has subsided, the banks are saying, ‘Thanks, we’ll take it from here.’ However, they don’t want to let go of government guarantees entirely because those taxpayer guarantees come in handy from time to time. And, they’d like to maintain that implicit promise that we’ll bail them out again if they mess up again — I mean when they mess up again.
This rant by Henry Blodget, himself no stranger to Wall Street or controversy, illustrates yet another example of how big institutions somehow ‘magically’ induced our government to give up its massive leverage with these firms [emphasis added]:
Another Colossal Mistake (The Business Insider, Dec. 14, 2009, Henry Blodget)
…As long as the banks were on the hook for that TARP money, the government had some ability to dictate reform. Now it has none.
And in case you missed what is really going on here, the banks that repaid TARP are now getting all the benefits of government help with none of the drawbacks. They just ditched the bad stuff–namely, pay caps–and kept the good stuff (implicit bond guarantees, subsidized super-low interest rates, no obligation to do anything for anyone)…
Why does this matter? Because, as Alan Greenspan of all people just observed, taxpayers are still on the hook for everything, and the government now has no bullets left.
…If the banks get in trouble again, or if it becomes plain as day that they’re never going to start lending because their balance sheets are in rotten shape, the government won’t be able to do anything. After watching the appalling bailouts and bonuses of the past year, taxpayers will start a revolution before they allow the government to put hundreds of billions of dollars directly into the pockets of Wall Street again…
We all know that if the big banks get into trouble again, they will look to taxpayers to bail them out yet again. In may career, I make this the third or maybe even the fourth time it has happened. I hope that Blodget is correct that the American people are finally fed up.
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Kurt Brouwer is a fee-only financial advisor with three decades of experience. He is the chairman and co-founder of Brouwer & Janachowski, LLC. Kurt has written books, articles and hundreds of blog posts on mutual funds, ETFs and other investment topics. E-mail: kurt.brouwer *at* gmail.com.
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