First, the amount: 1.2 Trillion dollars. Quite a sum of money. To put it in perspective, that is just a bit over $10,000 per household in the U.S. In other words, instead of bailing out the banks (many of them foreign banks, btw), the Fed could have given over 10K to each and every household in the country to stimulate the economy.
This money wasn't a gift though, it was a loan, so, in fairness, we can't compare it to a "stimulus check" program. To put it in a personally meaningful analogy, here is what happened:
A Real-world Analogy of the Lending Program
Imagine that you hit a financial "rough patch" and can no longer generate the cash to pay your bills. The bill collectors are calling every day, but you don't have the money to pay them, and the bank, seeing what poor condition you are in, refuses to give you a short term loan to cover your expenses.
In short, your income has fallen and your credit has dried up, and you cannot pay your bills. You are about to face bankruptcy, forced liquidation, and financial ruin.
But.... imagine then the Fed steps in, and tells you about a new program they have: you can borrow money directly from them, at around 1% interest. The only catch is, you need to put up some collateral.
Your house and your car are already mortgaged, though, so you don't really have much good collateral to lend against. The Fed says, no problem, we'll let you use "non-standard" collateral. So you start listing whatever you've got: a couple TVs, your furniture, your DVD collection, your old fridge, whatever. Amazingly, lo and behold, violating all the standard rules for acceptable collateral, the Fed accepts it!
So: the Fed lets you write the value of all your junk as collateral on their 1% loans. You then take their money at 1%, use the money for living expenses, and pay off your bills.
It's pretty cool, because you pay off your high-interest mortgage, car loan, and credit cards with the low-interest Fed loan. You are even able to live on the loans during your extended period of unemployment. It takes awhile, but within a year, you land another job and your finances improve. You start paying off the Fed loan, and two years later, the Fed loan is paid off.
That is precisely what the Fed lending program amounted to, although, of course, it was done for the benefit of the wealthy bankers, not for any urban peasant such as yourself.
Good Thing? or Bad Thing?
As noted by other analysts, this is a classic case of "Welfare for the Rich, Harsh Capitalism for the Rest." But, nonetheless, we may ask, was it the right thing to do? Did it save society from some sort of economic apocalypse?
The short answer is NO. Banking and lending are parasitic economic activities, meaning, they do not create wealth. Keeping them alive is like providing life-support to the colony of fleas on the dog. Even if you don't understand the economic theories, you can see the results since 2008: years of economic decline and stagnation, incomes falling, inflation and unemployment rising.
Meanwhile, wealth concentration at the top is at an all-time high. Hardly surprising, is it, when the official policy is so friendly to the financial elite?
The Alternative - a People's Bailout
Bloomberg notes, the 1.2 trillion dollars is "about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages." In other words, the Fed could have chosen to bailout homeowners, but chose not to.
The hardworking people of our country were left in the cold, at the mercy of their creditors in a deflationary depression. Meanwhile, the creditors themselves, who created the deflationary depression with their reckless and unregulated money and debt creation practices, were fully shielded from the consequences of their destructive actions.
If this doesn't exactly describe "the failure of democracy", I'm not sure what else it would take.... "Government by the rich, of the rich, and for the rich", exactly describes the dystopia in which we live.
see additional info here http://www.bloomberg.com/news/2011-08-21/wall-street-aristocracy-got-1-2-trillion-in-fed-s-secret-loans.html
1 comment:
Well put.
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