Former Wall Street Player Reveals the Inside World Behind Shady Bailouts to Bankers
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NP: Neither the crisis, nor the bailout was about the little guy. Former Treasury Secretary Henry Paulson was explicit in stating several times, and in several ways, that the government should not be bailing out homeowners who got in over their heads. And true to those sentiments, it didn't. Instead, amidst trillions of dollars of subsidies to the industry were made available in the most original and creative of ways, and no heed was paid the jointly humane and economical solution which would have been to find ways to restructure personal mortgages and loans, as opposed to dumping buckets of money over the top layers of the financial community and promising it would somehow trickle down and loosen credit for the "little guy."
The people that blame the Community Reinvestment Act for the avalanche of predatory lending are missing the true numbers that represent the situation. Only $1.4 trillion worth of subprime loans were extended between 2002 and 2007. On the back of those loans, the industry created $14 trillion worth of various types of assets and borrowed up to 10 times that amount using those new assets as collateral.
If the government had wanted to help homeowners and contain the costs of the bailout, it could have subsidized underwater mortgages directly at the loan level, or made it mandatory for banks to renegotiate credit terms or mortgage balances with individuals, as opposed to making it a mild suggestion that the banks have no incentive to follow.
For the money spent on subsidizing the industry, the government could have bought out every single outstanding mortgage in the country. Plus, every student loan and everyone's health insurance. And on top of that, still have trillions of dollars left over.
That's why I get so enraged at the bizarre notion that a 10-year, $900 billion health care option is somehow egregious and government interfering with our lives. We should all take $90 billion a year to sustain our health and access to health care over lavishing trillions on the banking system any day, no matter what our political party affiliation is.
JH: Sticking on that line, you write in the book that "The finance community's theory is Darwinian: Little people who take bad risks deserve the consequences. Companies that take bad risks are a welcome addition to the fallen-competitor list." But not all those who took bad risks did fall -- in fact some of the financial firms that are raking in healthy profits and whose execs are cashing out huge bonuses took some risk as well. Can you tell us who ended up getting all those billions in bailout money?
NP: At one point, a total of $19.3 trillion comprised of $17.5 trillion deployed in some capacity for subsidizing or bailing out banks (including $3.7 trillion to back money market funds, which has now been taken off the table) compared to $1.8 trillion for citizen-related assistance, including some homeowner initiatives. I keep track of the changes to these figures on a monthly basis on my Web site: http://www.nomiprins.com/
Of the top three main recipients of the bailout: Bank of America still owes the government $63.1 billion, AIG sits on top of a $181.8 billion pile of federal help, and Citigroup has a $368.7 billion public cushion.
Other recipients of government aid include Goldman Sachs, who is on track to pay out $22.1 billion in total compensation compared to $10.9 billion in 2008 and $20.2 billion in 2007. Additionally, JPM Chase is on track to pay $29.1 billion, nearly what it would have paid out in compensation in the year before the crisis, had it owned Bear Stearns and Washington Mutual then. Goldman Sachs still floats on $54 billion of federal support, and JPM Chase $73 billion – even after repaying their TARP obligations. (Remember, the $700 billion TARP fund is but a fraction of the entire bailout and subsidization of the banking industry, despite Goldman, JPM Chase and the government wanting us to believe otherwise.)