Treasury Secretary Tim Geithner has just issued an update on bailout loans to banks and financial institutions, which made profits. Image from Wikimedia Commons.

The recession is definitely over for banks that got bailout loans from the taxpayers, and the bailout is now paying dividends. The portion of the Troubled Asset Relief Program that lent funds to banks with bad assets has made a profit, as huge banks and Wall Street firms are very profitable again. Relief programs for the housing industry have not been so successful.

Loans from the TARP program were good investments

The installment loans from the taxpayers to huge banks and investment firms under the Troubled Asset Relief Program were certainly a cause of controversy. However, according to CNN, the Department of the Treasury has reported that loans to banks and other entities in the financial industry have resulted in a $6 billion profit, which may grow to a $20 billion profit by the time all loans are repaid. TARP had $700 billion, and $432 billion has been spent.

Mortgage modification program cut

The federal mortgage modification programs have not been as successful as the government hoped they would be. As a result, the Home Affordable Modification Program has wound up on the chopping block, according to MSNBC. House Republicans were able to pass a bill that would terminate HAMP, but it may be a symbolic gesture, as a narrowly Democrat-controlled Senate and the Democrat President may not be as amenable to cutting the program. The program has been deemed a failure, as it has a success rate of less than 50 percent in modifying mortgages. Other mortgage relief programs are being targeted for elimination, but eliminating such programs would likely also be symbolic. Senate Democrats and the President may not be willing to cut the lifeline to troubled homeowners regardless of whether the programs don’t keep many from having to get same day loans and move out of underwater homes.

Wall Street feeling better about itself

A recent survey, according to Reuters, revealed that CEOs at large corporations were feeling better about the overall economy and were more willing to hire and try to expand their companies. Of the 142 CEOs that responded to the survey by the Business Roundtable, a trade organization for Chief Executive Officers at major corporations, more than half said they were going to start hiring people in the next year. If hiring at large firms picks up, that provides a boost to the middle class.

Sources

CNN

MSNBC

Reuters

As TARP ends, a Treasury official defended the program as he faced critics who said it helped Wall Street, not Main Street. Image: Alan Cordova/Flickr

The Troubled Asset Relief Program was a success, according to the man in charge of the infamous government bailout program. In the final hearing on TARP before the Congressional Oversight Panel March 4, Timothy Massad, the U.S. Treasury official in charge of the program, said it prevented a collapse of the financial system and will cost taxpayers less than originally proposed. But critics on the panel said TARP helped Wall Street, not Main Street, and in terms of economic recovery the program was a failure.

Why Treasury believes TARP was a success

The Troubled Asset Relief Program ended March 4 after spending about $411 billion to bail out Wall Street banks, the U.S. auto industry and homeowners at risk of foreclosure. Timothy Massad, acting assistant secretary for the Treasury Department’s Office of Financial Stability, told the Congressional Oversight Panel for TARP that the program helped back the U.S. economy away from the brink of a depression at a time when no other government tools existed to do so. Congress authorized $700 billion for TARP at the height of the financial crisis in October 2008. About $475 billion will ultimately be spent. Initially, the cost to taxpayers was projected at $341 billion, but TARP is estimated to end up costing just $25 billion. Big Wall Street banks, such as Goldman Sachs, Citigroup and Bank of America, have paid back their bailout money. The government has recovered $277 billion in TARP money so far.

Why critics say TARP was a failure

The Congressional Oversight Panel pointed out the severely underperforming TARP-funded Home Affordable Modification Program as evidence that government bailout funds benefited Wall Street but left the rest of America in the lurch. Two years ago the administration said that HAMP would help up to 4 million homeowners avoid foreclosure. However, only about 600,000 homeowners have received loan modifications to date. The oversight panel estimated that the program would prevent less than 800,000 foreclosures, information House Republicans are using to justify killing HAMP. Massad warned against doing so. He said that killing the program would prevent tens of thousands of at risk homeowners from getting help at a time when the housing and employment markets have such a long way to go.

Moral hazard and the status quo

Critics of TARP on the oversight panel contend that TARP condoned moral hazard by assuring Wall Street banks that they are indeed “too big to fail.” Knowing they will be bailed out in future crises will encourage Wall Street banks to continue taking unnecessary risks to maximize profits. TARP critics refused to acknowledge Massad’s claim that TARP was a success because the banking system has returned to the status quo, unemployment remains unacceptably high and the U.S. economy remains weak. Joseph Stiglitz, a Nobel Laureate on the oversight panel, said that in the ultimate objective of economic recovery, TARP was a “dismal failure.”

Sources

MarketWatch

ABC News

Reuters

AIG recently raised more than $6 billion to pay back the U.S. Treasury. Photo Credit: David Shankbone/Wikimedia Commons/CC-BY

AIG and General Motors have been making great progress in paying the United States Treasury back for the bailout loans both companies received. AIG and GM were both maligned for the huge amount of money the firms received from the government, but they are returning to solvency. AIG was the single largest bailout performed under the program.

MetLife stock sold to pay back loans from Treasury

Insurance giant AIG sold a portion of its shares in the MetLife insurance company and turned over the proceeds to the United States Treasury, according to USA Today. AIG gave up 146.8 million shares of MetLife stock, from which the company raised $6.3 billion to make payments to the United States Treasury. AIG is using the funds in the effort to repurchase the $18.2 billion the Treasury holds in preferred equity shares of AIG. The government also holds 92 percent of AIG’s common stock, which was a condition of the bailout package the insurance giant received from the Troubled Asset Relief Program, or TARP. AIG was the single largest bailout, receiving more than $182 billion in total. The bailout included the Treasury and the Federal Reserve purchasing toxic asset from the company and $68 billion in loans.

General Motors on the road to health

General Motors, another notorious bailout recipient, borrowed $49 billion from the government to stay afloat, and the company has been making huge strides toward paying it back. General Motors recently announced in an earnings report that the company had made a profit every quarter of 2010, according to Reuters. This marks the first time since 2004 that the automaker has been profitable for an entire year, and it made the largest profit since 1999. GM posted a profit of $4.7 billion for 2010, though the stock price for the company has barely moved since the initial public offering in November. The Treasury still holds 33 percent of GM stock, which is a significant reduction since November 2010, when the Treasury held 61 percent. It is projected that the GM share price will have to rise to $53 per share for the government to break even.

End result of TARP

David Miller, the chief investment officer for the Troubled Asset Relief Program, said that the cost of corporate bailouts is not likely to be more than the money allocated for the housing crisis, according to Reuters. Miller said the Congressional Budget Office estimates that TARP will cost a total of $25 billion, and the Obama administration estimates slightly more than $28 billion. Treasury Secretary Timothy Geithner has said the estimate of $25 billion may be high. Various companies still owe the government $135 billion for TARP loans.

Sources

USA Today

Reuters on General Motors

Reuters on TARP estimates

Neil Barofsky was frequently critical of the way the Federal Reserve and TARP operated together. (Photo Credit: CC BY-ND/Duff McDonald/New York University School of Law Blog)

As the $700 billion Troubled Asset Relief Program winds down, a surprise defection occurred, reports Reuters. Neil Barofsky, inspector general of TARP and the top financial industry bailout auditor, handed President Obama his resignation letter. Barofsky, who will leave his post March 30, did not give a reason for his resignation.

Inspector General Barofsky appointed by President George W. Bush

Appointed in November 2008 at the height of the financial crisis, Barofsky, 40, served for more than two years. In his resignation letter to President Obama, Barofsky wrote that it “has truly been an honor to serve, particularly during such a critical time.” His dedicated service in pursuing fraud allegations, as well as pointing out where the TARP program fell short of expectations, earned Barofsky respect among his peers.

Under Barofsky’s direction, the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) grew to 140 staffers, from auditors and investigators to attorneys and others. Currently, SIGTARP continues to operate regional offices in New York, San Francisco, Los Angeles and Atlanta.

As long as banks owe, TARP will live on

TARP no longer has official jurisdiction over new spending programs, and the U.S. Treasury is weaning financial firms and automakers from Federal Reserve investments. Still, because so many banks continue to struggle making payments on their massive installment loans, TARP’s mission is ongoing. Christy Romero, who will take over at least on an interim basis for the departing Barofsky, will continue to work with the 150-plus TARP banks that have missed regular installment loan payments. In addition, the largely unsuccessful Home Affordable Modification program continues to require oversight, said Barofsky, as foreclosures have not abated significantly.

The money is there; manage it wisely

Barofsky’s parting advice to the Obama administration and the Federal Reserve is to manage with care the taxpayer money that remains on the TARP table.

“With more than $150 billion in TARP funds outstanding and close to $60 billion still available to be spent, robust and effective oversight of TARP remains vitally important,” Barofsky wrote.

In addition to the billions of dollars in installment loan payments delinquent TARP banks owe, an Obama administration forecast indicates that the administrative costs of TARP will exceed $28 billion.

Sources

Reuters

SIGTARP

Barofsky grants a window into Federal Reserve mismanagement

Ford Motors had the best year in a decade. CC by AndrewEick/Flickr

With new models and a reputation on the upswing, Ford Motor Co. is running strong, reports Automotive News. On Jan. 28, Ford revealed numbers that prove that 2010 was the company’s most profitable year since 2000. It is the second straight year under CEO Alan Mulally that Ford has announced a profit.

Getting a 48-cent profit per share with the ‘money machine’ at Ford

The $30.57 billion fourth-quarter revenue that Ford Motors had shows a 48-cents-per-share profit before taxes, reports a Thomas Reuters survey. With that rate of gains, the fourth quarter profits would be about $1.7 billion, and 2010 was Ford’s best first three quarters since 1998 with $6.37 billion in net income, totaling the year out at $8 billion

Automotive News reports that Ford’s annual profit in 2009 was $2.72 billion with a total revenue of $118.31 billion. The company is doing well because of Ford vehicle quality, Mulally explained. J.D. Power & Associates ranked Ford among the best mass-market brands recently. Overall in the J.D. Power survey, Ford got fifth behind Porsche.

“Ford is building better cars since (Mulally) came in,” said fund manager Gary Bradshaw of Dallas-based Hodges Capital Management, which owns 100,000 common and 100,000 preferred shares of Ford stock. “He’s just making this company a money machine.”

No TARP funds for Ford

When it comes to consumer confidence, Ford has got it all. Unlike GM and Chrysler, Ford didn’t accept any TARP money. In what Alan Mulally labeled “the world’s largest home-equity loan,” Ford leveraged its main assets back in 2006 for $23 billion in private loans.

Citations

Auto News

CEO Alan Mulally on Ford’s direction in 2011

The Federal Reserve, and chairman Ben Bernanke, have released data on which institutions received installment loans in the bailouts. Image from Wikimedia Commons.

The Federal Reserve has opened up the books on which companies received installment loans in the bailouts. There weren’t too many huge surprises, but the amount of instant cash wired out was staggering. The Fed lent more than $3 trillion in total.

Huge installment loans from the Federal Reserve

The Federal Reserve, headed by chairman Ben Bernanke, was a heavy player in the bailout programs, which lent trillions in installment loans to various banks and investment houses as part of the bailouts. Since it is a loosely federal organization, it does have to disclose some data. Recently, the information about which companies received large money loans from the Fed was released. Between 2008 and 2009, when the Troubled Asset Relief Program, or TARP, was going full tilt, nearly 21,000 different banks, investment houses and companies received loans from the Federal Reserve, according to the Washington Post. In total, those loans totaled more than $3 trillion. Controversial recipients were a number of overseas banks, such as the Development Bank of Korea, which borrowed billions. Deutsche Bank of Germany, and UBS of Switzerland also borrowed heavily from the Fed.

Trillions more in short term loans

The Federal Reserve also lent out an even larger amount of short term loans, though lending overnight loans for banks is within the scope of the Reserve as a lender of last resort. However, the overnight short term loans were not exactly the size of typical short term loans, like payday loans; more than $9 trillion went out in overnight lending, according to CNN. The interest assessed to most entities that were borrowing money from the Fed ranged between 0.5 to 3.5 percent interest, which is far less than most personal loans, to be sure.

The silver lining

The Federal Reserve has a lot of control over the supply and value of American currency, and the amount of money it lent is staggering. However, the Federal Reserve has already been repaid by most of the entities it lent money to and managed to turn a profit on the loans.

Sources

Washington Post

CNN

TARP ends Oct. 3 after getting results at a discount, but "bailout" has become the dirtiest word in politics. Image: CC Willamor Media/Flickr

The Troubled Asset Relief Program (TARP) ends Oct. 3 after accomplishing its specific objectives and costing less than originally predicted. But TARP became a symbol of big government and made “bailout” a dirty word wielded by Republicans to score political points. The fact that TARP saved Wall Street, automakers and insurance giants, yet failed to perceptibly help ordinary Americans has Democrats on the defensive over a policy enacted by the previous Republican administration.

The true cost of TARP

TARP will stop extending loans Sunday, but it will continue to collect dividends and repayments. Fortune at CNN reports that it’s been two years since Congress gave $700 billion to the Treasury Department to prevent an economic collapse. The economy is limping along, Wall Street has resumed pillaging, and TARP’s final bill is much less than originally thought. According to the Treasury, the government only lent $386 billion of the fund. That money is coming back to the government at a much higher rate than expected. This week Treasury secretary Tim Geithner said he expected the total cost of TARP to be less than $50 billion.

The toxic backlash of TARP

The Washington Post reports that the TARP money spent is a fraction of what the government allocated to save the financial system. The Treasury and the Federal Reserve have spent more than $1.5 trillion to keep the mortgage and housing markets from melting down entirely. The bailouts have also embedded the federal government deeply into the private sector. As a result, political extremists are painting economic rescue as a socialist takeover.

The twisted politics of TARP

TARP, despite meeting its intended results at a discount, has put Democrats on the spot for defending a program that was the product of the Bush administration. ABC News reports that Republicans are hoping to take advantage of TARP’s unpopularity by linking Democrats and President Obama to “bailout,” which has become the dirtiest word in politics. For example, at a press conference Aug. 10, House Republicans used the word at least seven times while badmouthing a $26 billion state fiscal aid package moving through Congress. The Republican “Pledge to America” vowed permanently to end the program, even though it has expired already on its own.

In a brief instance of cooperation under the Capitol dome, a small business bill was actually approved in the Senate. Image: CC Greg Palmer/Flickr

Few who understand Congress expected lawmakers to succeed in passing a small business bill before the November midterm elections. But two Republican senators who are not seeking re-election crossed party lines to give Democrats the votes they needed. After a summer of partisan bickering, the Senate passed a small business bill Thursday. The legislation aims to improve access to credit and provide tax relief for small businesses, which policymakers say create a majority of new jobs. The bill now heads to the House, where it is expected to quickly pass.

Small business lending and tax breaks

The small business bill that finally passed the Senate Thursday features the creation of a $30 billion lending fund directed to regional banks for small business lending. Republicans called the fund another taxpayer bailout like the Troubled Asset Relief Program. However the Wall Street Journal reports that unlike TARP, banks actually volunteer to participate in the new small business lending program. The interest rate banks are charged for the money is tied to how much they use it to increase their small business lending. The small business bill also includes about $12 billion in business tax breaks, including an immediate write-off of 50 percent for new equipment purchases in 2010 for all businesses. The amount of new investment that small businesses are allowed to expense in 2010 and 2011 will double to $500,000.

Retiring Republicans choose principle over party

The House passed a version of the small business bill earlier this year. The Los Angeles Times reports that business entities expected to support the bill, including the U.S. Chamber of Commerce and the National Federation of Independent Businesses, instead chose to use the legislation as a vehicle to weaken the new healthcare reform law. Republicans filibustered the small business bill in July, demanding the to add amendments unrelated to the objectives of the legislation. At one point, frustrated House members staged a sit-in at the Senate chamber to protest the delays. Finally months of partisan gridlock were overcome by Republicans George LeMieux of Florida and George Voinovich of Ohio, senators who are not seeking re-election. They joined 57 Democrats and two independents to pass the measure 61-38.

It may be the richest few who get the most handouts. Image from Wikimedia Commons.

The financial reform bill that is heading for Obama’s desk is designed with Wall Street in mind.  The idea is to keep the recession of the last few years from happening again, and to not have to bail out any more banks.  However, that brings up the issue of which institutions actually were bailed out, or benefited the most.   The public is the one funding it, so we should know who it was receiving our dollars.

Wall street got the bulk of the bailout

According to CNN Money, there were 707 banks that participated in the Troubled Asset Relief Program, or TARP.   From those 707 banking institutions, 690 of them had to split $40 billion between them.  The average for those 690 banks is $57,971, 014.49 apiece.  That means that the bulk of bailout funds went to 17 of the largest financial institutions, 13 of which have already repaid the Treasury.  They are also starting to return to profitability, as it was announced today in the Market Watch that JP Morgan Chase had just posted $4.8 billion in second quarter income.

Main street left struggling

The same CNN article also highlighted that only $15 billion of the $40 billion lent to small and medium banks participating in the Capital Purchase Program, or CPP.  Main street banks weren’t definitively left in the lurch, but the banks that were too big to fail certainly weren’t allowed to.  Only 10 percent of the smaller banks that received CPP loans have been able to repay their debts already.  Out of the small banks that still owe money from CPP loans, 15 percent have missed at least one payment.

Feed the wolves to save the sheep

Wall Street is still at the heart of the fallout from the financial crash in 2008.  The financial reform bill that just passed is testament to the call for them to run things more responsibly, and with the $550 million fine just slapped on Goldman Sachs from the SEC, it seems that more stringent standards may become the norm.  However, what happens if Main street banks go under?  Will we have to choose from a small list of institutions that just cost us $700 billion or more to watch over our money?

Further Reading:

CNN Money on TARP: http://money.cnn.com/2010/07/14/news/economy/Main_Street_banks_TARP/index.htm

CNN on Goldman: http://money.cnn.com/2010/07/15/news/companies/SEC_goldman/index.htm

Market Watch: http://www.marketwatch.com/story/jpmorgan-chase-reports-second-quarter-2010-net-income-of-48-billion-or-109-per-share-on-revenue1-of-256-billion-2010-07-15?reflink=MW_news_stmp

Have Fannie Mae and Freddie Mac become a sinkhole? Image from Wikimedia Commons.

Over the past few years, mortgage houses Fannie Mae and Freddie Mac have been placed in conservatorship. The government has been in charge, and the companies have been given massive amounts of money in bailout funds. The emergency loans given to the mortgage houses were not from TARP funds, and taxpayers are starting to protest that the tab is too big a burden. The afflicted firms have become targets of protest, and perhaps rightly so.

Fannie Mae and Freddie Mac tabs expected to rise

Recently, Fannie Mae went back to the government, asking for $8.4 billion more in loans, after posting a an $11.5 billion loss for the first quarter of 2010. Freddie Mac also dropped a lot of revenue for the quarter, and it saw $6.7 billion go down the drain.  Granted, that isn’t as bad as their losses from a year ago, but Freddie Mac is asking for an additional $10.6 billion from taxpayers. Aside from these two requests, that brings the total tab to almost $145 billion, according to CNN Money.

Not including the TARP bailout

The funds already allocated to Fannie Mae and Freddie Mac are not part of the Troubled Asset Relief Program.  The Congressional Budget Office, according to CNN, estimates that the toxic twins will end up costing taxpayers $389 billion by 2019.

Final Fannie Mae tab hard to tell

It’s tough to say what the final cost of the bailout and takeover of Fannie Mae and Freddie Mac will be. The Congressional Budget Office and the Office of Management and Budget (the counterpart office that reports to the President) have conflicting viewpoints.  One will insist they belong to a particular part of the budget, another will keep them off the books. To be fair, the CBO has made mistakes, and some pretty famous ones.  One wonders how long it will be before Fannie Mae and Freddie Mac will be on YouCut.

General Motors makes $6 billion payment

General Motors wired the final payment Tuesday night on $6.8 billion in installment loans from U.S. and Canadian governments. More than $1 billion went to the Canadian government, and $4.7 billion went to the U.S. Treasury. According to Reuters, the U.S. Treasury has confirmed that General Motors has paid its loan obligation a full five years before the maturity date of the loan.  The loans made to General Motors and Chrysler were part of the TARP program.

General Motors to begin mass production of Chevy Volt

Production has already commenced on the Chevy Volt, the plug in hybrid.  It is being manufactured at the Hamtramck plant near Detroit.  General Motors Chief Executive Ed Whitacre has also, according to CNN, announced they will invest $136 million into the Fairfax, Kansas and $121 million into the Hamtramck, Michigan plants for production of the next generation Malibu. The Fairfax plant also produces the Buick LeSabre, and the Hamtramck plant produces the Buick LaCerne and Cadillac DTS models, among others.

Not out of the woods just yet

The U.S. and Canadian governments are still majority shareholders of General Motors.  Currently, according to this article in The Guardian, the US and Canadian governments collectively hold 73 percent of GM stock, the U.S. holding 60 percent.  General Motors received about $50 billion from the U.S. Treasury in TARP funds, and the plan is that once GM is allowed to go public for stock purchases again, the taxpayers will get back something on their investment. Chrysler is still struggling, though it has begun to make positive steps.  The Wall Street Journal reports that Treasury Secretary Tim Geithner will be meeting with Whitacre soon.

So is it ok to buy GM again?

Many people were dissatisfied with the involvement of the Treasury, and also the fact that one of the largest manufacturers of domestic automobiles slipped so badly.  The car manufacturing industry is also one of the largest employers in the US, and thousands were laid off in the wake of the General Motors and Chrysler bankruptcy.  This is proof that GM is returning to not only solvency, but perhaps to profitability, and with the upcoming release of the Chevy Volt, Detroit may soon see the dawning of a new day.

(Photo Credit: http://www.flickr.com/photos/jm3/ / CC BY-SA 2.0)

Pay Czar Kenneth Feinberg will once more slash and burn the salaries of TARP CEOs. (Photo: Wikipedia)

Obama “Pay Czar” Kenneth Feinberg wields a mighty money ax, and that ax is coming down once more on executive salaries at bailed out companies, says Reuters. The five firms under consideration – AIG, General Motors, GMAC, Chrysler and Chrysler Financial – are still depending upon government assistance to remain afloat. Since the Obama administration has found that previous crackdowns haven’t sent talented workers “fleeing for the exits” as the companies feared, the Pay Czar has the power to make another cut. Overall for 2010, the Treasury cut cash pay 33 percent.

Pay Czar’s office says 84 percent still with firms, despite pay cuts

In fact, Feinberg told the media that “There is a striking number of holdovers.” So far, that’s all the evidence the Treasury needs to justify striking this delicate balance and enable more money to come back to American taxpayers. The firms must be able to function, but taxpayers’ overnight loans must also be repaid. If a firm received “exception assistance” from the $700 billion in TARP funds, that firm must make sacrifices to repay America’s taxpayer base.

People don’t like to hear about AIG execs receiving multi-million-dollar bonuses

Yet that’s what happened, even after taxpayers had given up TARP monies to keep them afloat. Now that Pay Czar Feinberg is making wider cuts, the hope is that more Wall Street firms will follow the example. It could be the only way to begin restoring public confidence in a financial sector that openly played unnecessarily risky games with other people’s money. Reuters reports that Bank of America and Citigroup have repaid all or some of the TARP money they took, but too many offenders are still on the hook.

No cash bonuses, no long-term restricted stock, no golden parachutes

Those have all been eliminated in those companies under Pay Czar Feinberg’s watch. That frees up $45 million for AIG to repay their obligation to the American people. Salaries will also remain frozen at AIG with only “one exception” until they meet their obligation, says Feinberg. GMAC’s CEO has no cash salary now, only long-term stock. Chrysler’s CEO has a similar deal. Salaries there and at General Motors have been tightly monitored and kept down.

Let us reflect back on your greed

Companies that repay their TARP obligation would technically slip out of Pay Czar Feinberg’s regulation. Perhaps this is why he is looking to expand his legal authority. Reuters says he has contacted 419 TARP firms – including those who are technically off the hook – and asked them to “look back” at their past salary history. If pay was “excessive” between October 2008 (when TARP funds were first distributed) and February 2009 (when legislation affected pay levels at TARP firms), Pay Czar Feinberg wants there to be renegotiation. Specifically, pay above $500,000 for 2008 that is “not in the public interest” will apparently be routed back to American taxpayers in a yet to be determined percentage. Companies can either cooperate voluntarily or be forced by the Pay Czar to comply and give up news of their transgression to the public.

That’s quite an aggressive retroactive plan, isn’t it?

It will be interesting to see how many TARP companies fall in line. It is difficult to imagine the American public having any sympathy for them at this point. The recession has run too long and struck too deep in the country’s consciousness for more excuses. Taxpayers are not a personal loan company for these wasteful behemoths. Pay Czar Kenneth Feinberg may be the czar America needs; he may be the czar that Glenn Beck will regret weeping over.

Related Video:

http://www.youtube.com/watch?v=3Bw5s-EYA04

On the community level, smaller banks and credit unions give back to the people who need financial help.

You’ve seen it in the news and you’ve experienced it firsthand. Banks have cried to the government for bailout money to continue operating, they received billions of taxpayer dollars and what did they do with that money? High salaries and executive bonuses are still common in America’s big banks, and the American people are fed up. They use payday loans when they need quick cash, but what about long-term solutions? The Financial Crisis Inquiry Commission (FCIC) and well-informed panel members like Heather Murren are on the right track, pursuing bank CEO with probing questions about regulatory matters. But what can average consumers like yourself do with your money if you no longer want to support big banks and their greed and treachery? You can Move Your Money!

Community banks and credit unions build communities

Move Your Money is a grassroots effort that is designed to shift power “away from Wall Street and to Main Street,” according to MoveYourMoney.info. In a recent article, Phil Britt points out that the movement is supported by The Huffington Post, which is a significant organization to have in one’s corner. No more Goldman Sachs, Morgan Stanley, JP Morgan/Chase, Citibank, Bank of America or Wells Fargo, says Move Your Money. They all “took billions in taxpayer money and have cut lending to businesses by $100 billion.” Post founder Ariana Huffington identifies this as “populism at its best… a withdrawal tax on the big banks for the negative service they provide by consistently ignoring the public interest.” If the American people do not take a stand, big banks will continue to control your money (and likely mismanage it).

Community banks support them

Berdell Knowles of the Community Development Bankers Association defines the culture gap between average citizens and big bankers. He blogs that “The bank executives who make the decisions on how to use the earnings from your money, whether it be to pay management bonuses or to invest in sub-prime mortgages, will probably know little about you or your community.” The natural alternative is community banks that use their economic power to directly help local economies (rather than funneling it into the gigantic overhead big banks bring to the table).

Not only that, but Knowles acknowledges that a community bank might have better insight into a borrower’s creditworthiness if they’re familiar with the customer. It’s a personal touch that big banks can’t possibly duplicate. Another thing community banks have over big banks is specific community economic funds distributed by the government (federal and state). An example Britt gives is the three percent TARP funds for Small Business Lending. There were $1 billion in assets there, and it was specifically for community banks.

Are people listening to Move Your Money? Yes they are

Credit Union National Association CEO Dan Mica has blogged that “consumers are already voting with their wallets in favor of credit unions.” Two percent credit union membership growth in 2009 is the most that industry has experienced since 2001, so the swing is quite real. Rep. Barney Frank had his finger on the pulse of the people when he said that the mortgage crisis would never have happened if big banks behaved like community banks and credit unions. People see what needs to be done, and Move Your Money is a way to mobilize them. When the people need money, they can use payday loans, but in the long term, community banks and credit unions are much more worthwhile to support that America’s treacherous big banks.

Related Video:

The recession is beginning to slow down. Will short term loans be able to pick up the pieces?

Mortgage loans, home equity loans, short term loans and automobile loans are all on the rise now that the economy is on the upswing. The Bank Bailout of 2008 was created to help lenders regain their footing as solid business entities. In years leading up to the recession, lenders were lending so freely that they were not careful to qualify a borrower. A huge number of those borrowers defaulted on their loans and sent lenders into a downward spiral of disaster. The government created the bailout to help financial institutions regain their footing. Now that the bailout is over, the economic analysts are projecting that money will be flowing back into the U.S. Treasury. The total put out was $700 billion and the estimated return will be a huge sum, though less than the full amount. For example, Bank of America continued to repay their bailout portion of $45 billion last week.

TARP and What it Means to Taxpayers

TARP, or the Troubled Asset Relief Program, was set up by the Treasury to protect the Federal Reserve. The Fed realized late in the game that the banking system was at near crash-level and quickly tried to come up with solutions. It doubled its lending quickly and put more than $2 trillion into the economy. To mitigate damage, the Federal Reserve offered the TARP program. Though smaller lenders were slow to get on board, it was the larger lenders who set the stage for receiving help. Now that the economy is starting to recover, they are slowly paying the money back.

The price for taxpayers regarding the TARP program has yet to be calculated. In August, the Treasury predicted that of the total $700-billion bailout, approximately $341 billion would not be recouped. Fortunately, new studies are showing that an additional $200 billion will be coming back to the U.S. Treasury. The reason is because banks did better than anticipated and won’t need additional funding. Those funds are being diverted directly back.

What to Do With the Money

Both Congress and the White House have their own ideas on what needs to be done with the funds. Some of the ideas floating around the government are:

• Use the money to build up financial institutions more so they continue to extend home equity, mortgage and short term loans to the public.
• Spend the additional money on job creation.
• Fund new transportation and infrastructure projects around the country.
• Create additional tax credits for small business that start hiring.
• Fuel funds into local governments so they can stop layoffs of public workers.
• The President wants to use the recouped money to go to reducing the unemployment rate and towards the record $1.4 trillion budgetary deficit. Republicans vetoed the plan, however, citing that any TARP-related funds should be used for financial initiatives only.

A Hopeful Financial Future

Ben Bernanke, Federal Reserve Chairman, said, “If you look at the money that was put into financial institutions specifically, I think overall we are going to end up pretty close to break-even, maybe somewhat in the red, but not too much.” Admittedly, his estimates do not include the $20 billion spent on the automobile giants Chrysler and GM. Most believe that the money channeled to those two companies is lost for good.

The True Cost to Taxpayers

The true cost of TARP is unknown. Most analysts believe that is will bring a loss to taxpayers, but no one can predict how much. Some are speculating that once the money is brought back into the U.S. Treasury, it will be used to fund government programs and close up the deficit. Others are hoping that at least part of it is used to increase the number of mortgage loans, home equity and short term loans that consumers are able to receive.

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