Wall Street's 10 Greatest Lies of 2009
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2) If you give banks capital, they will lend it out.
On Jan. 13, 2009 Bernanke concluded that "More capital injections and guarantees may become necessary to ensure stability and the normalization of credit markets.” He said that "Our economic system is critically dependent on the free flow of credit." He was referring to the big banks. Not the little people.
Ten months later, though, he admitted that, "Access to credit remains strained for borrowers who are particularly dependent on banks, such as households and small businesses” and that “bank lending has contracted sharply this year."
In other words, big banks don’t share their good fortunes. Shocking. And as a result, bankruptcies are rapidly rising for businesses and individuals – a direct result of lack of credit coupled with other economic hardships like job losses.
Total bankruptcy filings for the first nine months of 2009 were up 35 percent to 1,100,035 vs. the same period in 2008. The number of business bankruptcies during the first three quarters of 2009 eclipsed all of 2008. Individual consumer filings totaled 373,308 during the third quarter of 2009 and were up 33 percent vs. the same period of 2008. Tell those people about the free flow of credit, Ben.
3) Taxpayers are being repaid.
On December 17, the Treasury Department announced: ”As a result of our efforts under EESA (the Emergency Economic Stabilization Act that spawned TARP), confidence in our financial system has improved, credit is flowing, and the economy is growing. The government is exiting from its emergency financial policies and taxpayers are being repaid.”
Even as banks rush to repay TARP in order to get the government off their backs before annual bonuses are set, the Treasury Department is helping them out. On December 11, the Internal Revenue Service gave government-subsidized banks a tax exemption that, for instance, allows Citigroup to keep the benefit of $38 billion. Three days later, Citigroup announced its $20 billion repayment of TARP. Get the math? Not exactly a taxpayer windfall.
Additionally, the FDIC gave banks including Citigroup, Bank of America, and JPMorgan Chase a holiday gift -- at least a six-month break from having to raise capital to support the billions of dollars of securities (read: toxic assets – remember those?) that firms are going to have to add to their books in 2010. That will open a whole new can of worms – a glimpse into either insolvency and a replay from the too-big-to-fail scenario, or book-cooking (the Financial Accounting Standards Board, as of last year, has allowed banks to price their own assets if there’s no true market for them – fun times), or both. Meanwhile, banks can use the capital for bonus payments instead.
4) Homeowners are being helped.
Last year’s big lie was that banks would turn around and help their borrowers if they got federal money. Yet, they were under no obligation to do so, and thus, they didn’t.
Since the Obama administration released guidelines for the Home Affordable Modification Program (HAMP) on March 4, 2009, the HAMP permanent loan modification numbers have been anemic.
Separately, by almost every measure, mortgage and credit problems are worse this year than last. There were almost a million new foreclosure fillings in the third quarter of this year, 5 percent more than in the second quarter, and 23 percent more than during the third quarter of 2008.
Plus, foreclosures are not abating. Mortgage delinquencies (borrower 60 or more days overdue) increased for the 11th quarter in a row, reaching a national average record of 6.25 percent for the third quarter of 2009. Delinquencies precede foreclosures. Compared to last year, mortgage borrower delinquencies are up 58 percent. Meanwhile, banks are sitting on properties they acquired to avoid selling them into the market and having to book the resultant loss.