SPINAL TARP – now turned up to 11!

So more QE from the Fed which will pressure the BoE and the ECB to do the same at some time in the near future.  Time to ask, again, what happened to all the money we put in so far? And why didn’t it solve things the way we were told it would?

Back when this mess started we were told by Bernanke and Paulson, that ‘sub prime was contained.’ Then, when it was obvious it wasn’t, we were told that with the ‘decisive actions’ being taken (bail outs) things would be fine by Christmas. Echoing another very unfortunate piece of idiocy by a prior cohort of experts and leaders.

And when it wasn’t over by Christmas and we were still in a no man’s land of job losses and economic contraction, we were then told that there were green shoots over the next hill, if we just made a push to get there.  But when we did get there turned out there were no green shoots.  What there was, was a banker’s bonus party to which we were not invited.

So I think at this point we are entitled to ask what happened, don’t you?

We were not just assured but bullied into accepting that what was wrong with the banks was a crisis of liquidity. And that was simply a technical matter of banks not ‘being able’ to lend to each other which meant the sillys couldn’t get the cash they needed to keep running.  Ridiculous really.  ‘Perfectly good banks’ with ‘priceless’ assets, that were in danger of going out of business for no good reason. A case of bankers nerves getting out of hand. The simple and straightforward answer to which, we were TOLD, was to give the banks the cash they needed until they all sorted themselves out and got back to business and usual. Which given how wonderfully clever bankers are, would be no time at all. Couple of quarters. No more. You’ll see.

Sadly their assets turned out to be priceless in a quite different way.  They were so priceless in fact, that accounting rules that would have revealed just how priceless, were promptly suspended and banks were encouraged to make up a value for their assets. Which is what they are still doing today.  Which does in turn make something of a mockery of the bank’s financial statements doesn’t it?  But there you go. That’s just me being a curmudgeon.

Now after two years of careful study, by immensely erudite phd’s poring over hugely complex computer models being run day and night to search of the ultimate answer to the crisis, a new plan has been revealed. And it is to do what we did before – but do it again only this time turn it up to 11!

SPINAL TARP! The ultimate bail-out experience.

But just before we all sit back relieved that salvation is at hand,  what did happen to the first couple of trillion?  Surely if it was just  liquidity isn’t a couple of trillion enough. I mean how much liquid can a few banks knock back?  Where is it all?

Well quite a lot was taken by the banks straight across the street to the Fed where they deposited it in their savings account in order to earn interest from us, on our money that we gave to them, in the forlorn hope they would use it to help us.  Which, of course they did not.  They neither got back on their feet, nor helped anyone else back on to theirs. Instead they tried very hard to foreclose on houses it now turns out they can’t prove they have any legal claim to.  Worse, they may have been promising the profits from many of the mortgages, to more than one client. None of whom would have been paid by the banks, but all of whom would have been paid by us, with bail out money for the last two years.

So forgive me for not really seeing how giving them another trillion is going to solve anything or help anyone other than them and their pals.

But not all of it went back to the Fed. So where is the rest? Well, its not at the banks. It doesn’t appear on the bank’s capital holdings. In fact most of the banks have had to raise MORE cash since the bail outs.  Turns out a great deal of our money has just gone.

Gone to pay off those ‘bad debts’ we keep hearing about.  Bad debts means the banks owe people money. Money they don’t have because the mortgages they thought were going to provide the cash to pay the debts just aren’t paying.  So our money has in fact been given, by the banks, to the people they owe money to.  Who it turns out are other banks, financial institutions, bond holders and a host of other very wealthy people.

Problem is the first couple of trillion have gone. The banks ran through the lot. But the people they owe money to , well they still owe them money. Lots of it. So the banks need/want/demand more money. Which will go the same way the first lot did. So I am tempted to ask, “Is that it?  That’s the plan? To give more money to the banks so they can funnel it off shore, to where it will be of no more help to the rest of us than the first lot was?”

Is this really the best we can do?