The Great Bailout Math – Part Deux

See the original article on the $12 billion bailout math:
This is a quick addendum to the post about how Geithner struck a bad deal for the tax payers when he bailed out the banks. 2010 and 2009 will most likely emerge as the best and second best year ever for banks (Bloomberg). This just adds to the evidence that the bailouts mainly benefited the shareholders.

Interestingly, many people seem to blame the banks (Bloomberg) for taking advantage of the situation the Federal Reserve and the Treasury have created. For example, many banks have been borrowing money from the Federal Reserve at near zero interest rates only to lend it to the US government at slightly higher interest rates. This is an almost risk-free profit that is only possible because of the Fed’s interest rates decisions.

It doesn’t make sense to expect companies (or individuals) to ignore opportunities that governments and regulators create. You probably make use of all the tax credits you qualify for. By the same token, any reasonably well-run bank would take advantage of any situation the government creates.

If anyone needs to be blamed for Wall Street profits, the Treasury and the Fed are first in line for not structuring the bailouts properly and for creating an environment where banks can reap big profits with very low risk. The banks themselves are simply looking out for their shareholders, which is exactly what they should do (and in fact are required to do by the regulators) as publicly owned businesses.

Posted by Martin Gremm (Pivot Point Advisors)

About the author

Marc Schindler, CFP®

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