by Jesse Jackson

Was the bank bailout successful? The Treasury Department, in a report leaked to The Wall Street Journal, is arguing that the bank bailout cost much less than expected -- less than $100 billion, while saving the entire global financial system from collapse.

The New York Times' invaluable Gretchen Morgenson takes this claim apart. She shows that Treasury counts the cost of stabilizing Fannie Mae and Freddie Mac, the mortgage behemoths, loan guarantees by the Federal Housing Administration, liquidity programs offered by the Federal Reserve and TARP, the congressional approved $750 billion Troubled Asset Relief Program, which, some Treasury officials suggest, may someday generate a profit.

But the Treasury is leaving out far more than it is including. The losses by the Federal Deposit Insurance Corporation in taking over failed banks are estimated at $6.65 billion for 43 failed banks this year. We have yet to see what the ultimate cost of the toxic waste that the Federal Reserve put on its balance sheet will be.

But the biggest costs are to working people and the real economy. Joseph Stiglitz, an economist and professor at Columbia University, suggests that the transfer of wealth from savers to banks due to the Fed's near-zero interest rate policy may be the largest redistribution of wealth in history. Banks essentially can earn fat profits on what they pay for their deposits -- near zero -- and what they make on their loans, especially on credit cards with average rates of 14 percent and more.

Even more staggering are the costs the Treasury doesn't think to count: the human costs of the Great Recession. Some 8.5 million jobs were lost. Millions lost their homes, with more to come. One in four homeowners at last estimate found their homes "under water," worth less than the mortgage. The stock market collapse savaged retirement savings and pension funds.

Poverty increased; homelessness increased. Unprecedented long-term unemployment will do permanent damage to workers -- particularly those over 55 and young workers whose incomes are likely never to catch up with the time lost. States and localities have been forced to make sharp cuts in spending, with teachers being laid off, classes becoming more crowded and university tuitions soaring. Morgenson quotes an economist suggesting that globally lost economic activity tallied about $4 trillion last year. The numbers are staggering.

Because the bailout featured a kind of trickle down economics, it focused on bailing out Wall Street while doing little for Main Street. No real help has gone to homeowners. Small businesses still can't get loans because banks were rescued without being reorganized, and are reluctant to make new loans while they slowly write down their toxic assets.

And perhaps equally costly, the big banks have emerged bigger and more concentrated than ever. They've reopened the casino and are back to making huge profits on trading. Bank profits are back to nearly 30 percent of all corporate profits. Million-dollar bonuses are back. And the bankers are mobilizing big time -- employing more than 125 former members of Congress and former congressional staff members -- and spending tens of millions to defeat financial reform. If they succeed, one cost of this bailout will be the cost of the next one sure to come.

And now citizens are about to get the bill for the mess. Our national debt has exploded. And now there is a move, led by Pete Peterson, who made his fortune on Wall Street, to balance the budget by raising taxes on working people and cutting Social Security and Medicare. That would be the greatest injustice of all -- the bankers who caused the crisis go back to their old tricks while paying themselves million dollar bonuses, while the workers who were the victims of the crisis are told they have to tighten their belts and sacrifice more.

Financial reform is now going forward in the Senate. But the bills before Congress are still too limited. There is no serious reform in compensation practices. No measure to break up the banks that are too big to fail. The much-needed Consumer Financial Protection Agency is buried in the Federal Reserve, with other regulators empowered to review its decisions. And the banks are mobilizing big time to stop comprehensive regulation of derivatives and other exotic products that are the source of big earnings.

The tea party rallies gained national attention railing at Obama and big government. But the country needs citizen movements that turn its attention to the banks and policies that caused the mess rather than the administration that was stuck with cleaning it up.

 

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Bank Bailout: Who Counts the Cost? | Economy