The 2008 $20 Trillion Bank Bail-Out Revisited

Wednesday, January 3, 2018 - 6:00pm
Betsy Bowman

Jack Rasmus in Z Magazine (Dec. 2017, Vol. 30, No. 9, p 28) counts up the cost of the $800 billion TARP bank bail-out initiated in Sept. 2008, and the subsequent “quantitative easing programs” carried out by the Federal Reserve and Central Banks in the major economies since then.

In the US, the Fed officially purchased $4.5 trillion in bad assets between 2009 and 2014. But it was actually more, perhaps as much as $7 trillion, because, as some of the Fed-purchased bonds matured and were paid off, the Fed reinvested the money once again to maintain the $4.5 trillion. The European Central Bank as of 2017 has bailed out European banks to the tune of $4.9 trillion, so far. The Bank of England, another $7 trillion. And the Bank of Japan, as of mid-2017, more than $5 trillion. The People's Bank of China bailouts to date amount to around $6 trillion. That's at least $21 trillion dollars poured into the global economy.

Why has there been no recovery except for those who hold stocks and bonds?

Banks create money. There is no fixed amount that gets exchanged indefinitely. Everytime someone takes out a mortgage, a car loan, a student loan, a pay-day loan, some bank is creating money and it is money created as debt. So for each dollar held by the world's billionnaires, someone owes that money to some bank or financial institution.

The wealth and income gaps are dangerous because they are debt that is held by the rest of the world and is owed to the wealthy. This debt destabilizes the global economy. To make matters worse, On top of this “real debt” is another quadillion dollars of bets--- derivatives. And this Mount Everest of debt and bets is based on “confidence.”

Throughout history, societies have operated with some kind of exchange of goods, often based on some form of fiat currency – money – and inexorably a few end up with most of the money and the rest end up in debt peonage. The typical outcome is social strife, war, revolution and the new leader proclaims a debt jubilee – he annuls all past debts - and the game starts over again. But we are far from a debt jubilee. The global surveillance state and the reach of the US military goes to each penny owed.

The current game is one where banks hoard the money they get from the Federal Reserve or Central banks. They hold it on their books. They use it to buy other companies; they long ago used it to pay off their TARP loans which lifted restrictions on executives' compensation; they use it to buy back shares and pump up the price of the stock share so they could sell at an even greater profit; and, they used it to give generous dividends to their stock holders and to themselves in the form of compensation.

There's been no recovery because the money hasn't been invested in production of goods and services and in hiring people to make those goods and services.

So the top 1% or maybe even the top 5% are doing fine, while everyone else is living on their 1975 wages, struggling with two or three precarious part-time or temporary jobs, and the US government borrows money from private banks instead of issuing their own currency debt free; gives it to the super rich as tax cuts, and blows it up along with excess populations around the world. This is not the kind of economy dreamed of by Adam Smith which would free people from the Kings' or Tsars' whims and the feudal rights of the aristocracy. This is a return to feudal arrangements where a very few own most everything – they were called Kings and Tsars – and the vast majority lived in wretched poverty. The great middle class promised by capitalism has been reduced to a miserable mass comparable to serfs, with a few courtiers or CEO's serving the kings and tsars, and they are doing quite well.

Naomi Klein calls it “Disaster capitalism.” Paul Craig Roberts, former Assistant Secretary of the US Treasury and Associate Editor of the Wall Street Journal, calls it “Plunder Capitalism.” William Davies calls it “Punitive Capitalism.” But this is no longer capitalism.

There is a positive solution that would end world poverty and save humanity: 1) stop the wars; 2) cancel the debt ; 3) redistribute wealth; 4) produce for need and not profit; 5) make all banks public; 6) make all businesses worker owned and managed. Or we can follow the logical consequences of the past 30-40 years' trajectory of neoliberalism. We can't let that happpen.

Betsy Bowman, Ph.D., is President, Center for Global Justice