Aug 282009
 

Hearing that the banks they bailed out are now “making a profit” is one of the insults taxpayers are reckoning with these days.

Bank of America recently announced $2.4 billion in second quarter profits – but still hasn’t paid back the $45 billion bailout money it got less than a year ago. Citigroup trumpeted $3 billion in profits while it too owes American taxpayers $45 billion. Insurance giant AIG, the top bailout dog with an astounding $182.5 billion in corporate welfare courtesy of U.S. citizens, proclaimed $1.82 billion in profits. And of course, now that these companies are “profitable” again, they are going back to the multi-million dollar bonus system for their executives.

Then there are the banks, like Goldman Sachs and JP Morgan Chase, that have “paid back” their bailouts (and pounded their chests for doing so). Goldman declared second quarter earnings of $3.44 billion – its largest profit in 140 years– and had already committed to $11 billion in bonus pay through June. JP’s profits:  $2.7 billion; first half bonuses: $14.5 billion.

But even these companies are sucking on the taxpayer teat. Under one of the emergency programs set up by the government to rescue Wall Street, the FDIC (Federal Deposit Insurance Corporation) guarantees that money borrowed by these companies will be repaid. This will save JP Morgan Chase about $3.1 billion, Goldman about $754 million, according to an analysis by the Wall Street Journal. (Citigroup, BofA and many other banks are also taking advantage of the FDIC guarantees.)

So the question Americans are asking (while they scan the job ads and try to figure out how to pay their mortgages and their kids’ tuition) is how can a bunch of companies that exist today only because of the generosity of the American people claim to be making “profits”?

The answer is they aren’t.

Everyone knows by now that Wall Street accounting rules were designed to maximize speculation and portray as flush firms that had borrowed vastly more than their assets. Worse, the rules were changed after last year’s crash to make balance sheets look even better than they really are.

The bigger problem is that neither the accounting rules nor Wall Street take into account the intangible value of restoring “life” to these flat lined firms. American taxpayers have put up trillions of dollars to resuscitate the Money Industry. But Wall Street doesn’t want to acknowledge that fact, and so is pretending the Great Defibrillation never happened.

Meanwhile, Congress, Bush and Obama never insisted upon a quid pro quo for the taxpayer money, so there’s no in kind obligation for Wall Street to repay. To the contrary, the banks and credit card companies are savagely jacking up interest rates and the innumerable fees they charge the people whose money saved them – us.

About Harvey Rosenfield

Harvey Rosenfield has been fighting to protect consumers and taxpayers against rip-offs and abuse for thirty years. He’s the author of Proposition 103, the landmark insurance reform initiative, which has saved Californians more than $63 billion in insurance premiums.

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