Those wonks over at The Nation have rendered our government’s ongoing corporate welfare scheme, known colloquially as “Carpetbaggers 2: The Return,” in terms that the average Kentuckian can understand. (sorry: No explosions or tits!) Although their allegory, which personifies the failing financial institutions in the fictitious guise of “Joe & Katie Hazzard,” is at times a too simplistic lens by which to evaluate a clusterfuck of this magnitude, they’re right on the money.To wit:
Another question our parable doesn’t answer is, Where does all the money come from? Most of it has been “printed” by the Fed, which expanded its balance sheet and, in so doing, created money out of thin air. There’s nothing wrong with printing money for the sake of keeping us from another Great Depression. In fact, not taking this step would have been disastrous. But the problem is how the money has been channeled. All that money was funneled through the banks; the real Joe and Katies–the actual households facing foreclosure and declining assets–haven’t gotten much help. In fact, foreclosures are at an all-time high (7.5 million US homes are in foreclosure), and there have been 1.25 million personal bankruptcies this year through June (up 34 percent from last year). Unemployment continues to climb. The FDIC continues to take over failing banks. Credit has tightened, not loosened as all the pre-bailout rhetoric promised.
A fraction of the $17.5 trillion bailout could have been used to cut the principal of homeowners’ mortgages (using homes, even devalued ones, as collateral) and cover student loans at zero percent interest. Rather than pouring it into the top layers–the banks–a people’s bailout would have cost less and been more humane. And it likely would have prevented the ongoing increase in defaults, foreclosures and general economic anxiety.
The banks would have hated that, of course.
Another failure of the bailout thus far has been its negligence toward smaller, mid-level banks and credit unions. Although many of these smaller banks eschewed the risky idiocy of Wall Street, the pain is definitely trickling down. Irwin Financial Corporation, which had branches in nine different states — far from the multi-tentacled reach of Goldman Sachs, AIG, CitiBank, et al. — was recently forced to shutter its doors in Louisville and in Columbus, Indiana, which makes them the 93rd and 94th Federally insured banks to fail this year. Apparently, the closures were due to the “souring of commercial real estate” loans, which is a direct consequence of frozen credit markets, a society living way beyond its means, and the fact that the economy was destroyed, on a whim, by individuals with golden-parachutes surgically implanted onto their backs.
Although their depositors remain insured, there is a more than a hint of desperation on the Irwin Corps. website:
We have been advised that Treasury is working on what they call ‘Plan C,’ which includes discussions with other banking agencies of a new application of the TARP capital program to assist community banks that have the ability to raise private capital. We continue to have private capital lined up and under contract to enable us to participate in such a program.
Maybe, after another year or so when the Federal Reserve prints another eleventy billion or so dollars, they’ll finally enact “Plan G.” What is “Plan G,” you ask? Why, Federal Reserve employees have to eat, silly!