FIRST POSTED NOVEMBER 6, 2008 With every passing day of economic woe, the scale of the heist just perpetrated against America's taxpayers by the country's largest banks becomes more apparent.
In the shadow of the presidential election, the nine biggest banks were given $125bn of taxpayer money with the understanding they would send this fresh capital coursing into the economy in the form of loans. It was a plan inspired by Gordon Brown's decision to recapitalise Britain's main banks.
Unfortunately, the US government forgot to get the lending requirement in writing. Instead, the banks are sitting on the money, earning interest and mulling mergers and acquisitions and replenishing bonus pools for their employees.
A stinging letter from Leo Gerard, the president of the United Steelworkers and a bullhorn from traditional American industry, to Hank Paulson, the Goldman Sachs banker-turned-Treasury Secretary, is now in wide circulation and its contents should have Wall Street barricading its doors.
Hank Paulson spent $10bn on a stake in Goldman Sachs worth only $5bnGerard makes several devastating points. The first is that the Treasury grossly overpaid for the stakes it has taken in these nine major banks. Twenty days before Paulson invested $10bn in Goldman Sachs, the investor Warren Buffett invested $5bn for a stake of equal value. Thus Paulson paid twice as much as he should have to his old employer.
This pattern, Gerard argues, was repeated across the board. Again and again the Treasury paid double what it should have, giving away half of its investment as a gift to shareholders. "This is no different than if you paid me $10,000 for a car for which no one else would pay more than $5,000," Gerard wrote. "If this deal is the model for how you intend to spend the whole $700bn that you got from Congress, then it would appear that you intend to reward the institutions that have driven our nation, and now it appears the whole world, into its most serious economic crisis in 75 years, with a gift of $350bn from the American taxpayers, who have watched 760,000 of their jobs disappear over just the past nine months."
He concluded: "Out in the real economy, we need our government to invest in creating sustainable shared prosperity - not play Santa Claus to the scoundrels who have laid waste to the American Dream."
The politicians who approved the Paulson plan are also suffering from acute remorse. Barney Frank, one of the Democrats who shaped the bail-out plan, said: "I am deeply disappointed that a number of financial institutions are distorting the legislation that Congress passed at the President's request. Increased lending activity is the only legitimate purpose for taxpayer funding of these institutions."
He has promised to haul the banks in this month to explain themselves. Though, in truth, there is little he can do now the cheques have been written. The legislation was purposely drafted to leave the banks some discretion.
And now they have the money, the banks will argue that the most important thing is the stability of the financial system. That may be best served by consolidation and mergers among banks. Or by retaining the best staff with decent compensation. Or keeping investors on board by paying them a good dividend. Anything but lending.
The purpose of the bail-out was not to help consumers, but mismanaged banks
The banks also point to lower demand for borrowing. Companies and individuals are trying to pay off their debts now rather than take on more. And those in the most desperate need of money are probably the least creditworthy. Banks do not see enough trustworthy borrowers out there.
So it becomes clearer and clearer that the purpose of the bail-out was not to help consumers by keeping credit lines open but to prop up banks whose own mismanagement had left them financially exposed.
Any bank which has taken government money in Britain or the United States would have to be deranged to pay out the usual bonuses to employees this year. But they are adept at finding ways around this, through deferred pay, pension top-ups and share schemes.
As he stares down the first $1 trillion annual deficit, President-elect Obama may like to start by taking some of that back from Wall Street. 
With every passing day of economic woe, the scale of the heist just perpetrated against America's taxpayers by the country's largest banks becomes more apparent.
In the shadow of the presidential election, the nine biggest banks were given $125bn of taxpayer money with the understanding they would send this fresh capital coursing into the economy in the form of loans. It was a plan inspired by Gordon Brown's decision to recapitalise Britain's main banks.
Unfortunately, the US government forgot to get the lending requirement in writing. Instead, the banks are sitting on the money, earning interest and mulling mergers and acquisitions and replenishing bonus pools for their employees.
A stinging letter from Leo Gerard, the president of the United Steelworkers and a bullhorn from traditional American industry, to Hank Paulson, the Goldman Sachs banker-turned-Treasury Secretary, is now in wide circulation and its contents should have Wall Street barricading its doors.
Hank Paulson spent $10bn on a stake in Goldman Sachs worth only $5bnGerard makes several devastating points. The first is that the Treasury grossly overpaid for the stakes it has taken in these nine major banks. Twenty days before Paulson invested $10bn in Goldman Sachs, the investor Warren Buffett invested $5bn for a stake of equal value. Thus Paulson paid twice as much as he should have to his old employer.
This pattern, Gerard argues, was repeated across the board. Again and again the Treasury paid double what it should have, giving away half of its investment as a gift to shareholders. "This is no different than if you paid me $10,000 for a car for which no one else would pay more than $5,000," Gerard wrote. "If this deal is the model for how you intend to spend the whole $700bn that you got from Congress, then it would appear that you intend to reward the institutions that have driven our nation, and now it appears the whole world, into its most serious economic crisis in 75 years, with a gift of $350bn from the American taxpayers, who have watched 760,000 of their jobs disappear over just the past nine months."
He concluded: "Out in the real economy, we need our government to invest in creating sustainable shared prosperity - not play Santa Claus to the scoundrels who have laid waste to the American Dream."
The politicians who approved the Paulson plan are also suffering from acute remorse. Barney Frank, one of the Democrats who shaped the bail-out plan, said: "I am deeply disappointed that a number of financial institutions are distorting the legislation that Congress passed at the President's request. Increased lending activity is the only legitimate purpose for taxpayer funding of these institutions."
He has promised to haul the banks in this month to explain themselves. Though, in truth, there is little he can do now the cheques have been written. The legislation was purposely drafted to leave the banks some discretion.
And now they have the money, the banks will argue that the most important thing is the stability of the financial system. That may be best served by consolidation and mergers among banks. Or by retaining the best staff with decent compensation. Or keeping investors on board by paying them a good dividend. Anything but lending.
The purpose of the bail-out was not to help consumers, but mismanaged banks
The banks also point to lower demand for borrowing. Companies and individuals are trying to pay off their debts now rather than take on more. And those in the most desperate need of money are probably the least creditworthy. Banks do not see enough trustworthy borrowers out there.
So it becomes clearer and clearer that the purpose of the bail-out was not to help consumers by keeping credit lines open but to prop up banks whose own mismanagement had left them financially exposed.
Any bank which has taken government money in Britain or the United States would have to be deranged to pay out the usual bonuses to employees this year. But they are adept at finding ways around this, through deferred pay, pension top-ups and share schemes.
As he stares down the first $1 trillion annual deficit, President-elect Obama may like to start by taking some of that back from Wall Street.
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