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When Do Consumers Get Their Bailout Money Back ?

Secretary of the Treasury Tim Geithner says that the banks have paid back the TARP money with a profit, and President Obama goes further to say the banks should pay a tax to make sure that taxpayers get all their money back. That is just a small part of the bailout. Trillions of consumer dollars went to bank bailouts. When will consumers get it back?

Free money from the Fed. The Fed reduced the rate it charges for loans to nearly zero percent. Banks, including the “pretend bank” Goldman Sachs, can borrow money from the Fed for free, and use that money to buy US Treasuries, which pay much higher interest than the Fed is paying. This gives those sweet fellows the opportunity to make billions of dollars with no risk. They don’t have to lend money to small businesses, with all that messy interaction with real people, so they aren’t. Those loans are down dramatically; even boosters in the business press have noticed. Goldman Sachs doesn’t lend money to anyone, so heaven knows what they’re doing with the money.

This is nothing more than an uncounted bailout for the banks and the likes of Goldman Sachs. When do we get that back?

Starving savers. The muddle-through policies of the Obama Administration call for saving the banks at the expense of small savers. Free money from the Fed means that giant banks don’t have to pay significant interest to ordinary consumers on their savings accounts, checking accounts and certificates of deposit. Look at Citibank: a $25,000 CD pays .35 percent interest for periods up to seven months, and a 12-month CD pays a walloping .80 percent. A $25,000 CD earns $200 per year. That is not an incentive to save. For retirees, whose income may be just Social Security and interest, it is ludicrous.

This is another source of free money for banks, taken directly from the pockets of the middle class and handed to the banksters. How will that money get back to those people, Mr. Geithner? How do you justify forcing retirees to eat their principle instead of interest, Mr. President?

Increased fees to individual borrowers. Banks didn’t just depend on government largesse to take advantage of people. They increased the fees to individual customers for credit cards, overdrafts and checking accounts. This is money from consumers that would otherwise be available for consumption or debt repayment. Mr. President and Mr. Geithner, how do you plan to restore that money to the innocent credit-card customer who never missed a payment, or to people forced into bankruptcy?

Screwing homeowners. The best way to begin solving the foreclosure crisis is to amend Chapter 13 of the Bankruptcy Code so that people’s homes, including second homes, would be treated the same way as every other asset. If assets aren’t worth what is owed, owners can keep them if they can pay the fair value of the assets at fair interest. In Chapter 13, people pay their unsecured creditors what they can, after they pay their secured creditors. That means that the budgets of those people are realistic, and they have a real chance to stay current.

Bankster blood vessels burst when the House actually passed this bill. The banksters persuaded their tame Senators into voting it down, leading to Senator Durbin’s admission that banks own the Senate. The result was predictable. Hundreds of thousands of people gave up. Many sent jingle mail, others quit paying and waited for foreclosure. There was vandalism. Foreclosures increased the number of houses on the market and caused staggering losses to banks and investors in mortgage products. In March 2010, losses on one group of securitized loans, about five percent of the mortgage market, totaled $3.01 billion. The average loss on each foreclosure was $145,000, or 63 percent, compared with 13 percent on modifications with write-downs. The increase in overhang reduced the fair value of the houses in the neighborhood.

Why didn’t you and your boss push hard for amending the Bankruptcy Code, Mr. Geithner? Mr. President, under your plans, taxpayers paid servicers, many of which are owned by banks, to perform worthless interest-payment modifications. That was another predictable failure. Why didn’t you step up? When is that money coming back?

It isn’t.

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