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Secret and Lies of the Bank Bailout -Matt Taibbi

The federal rescue of Wall Street didn’t fix the economy – it created a permanent bailout state based on a Ponzi-like confidence scheme. And the worst may be yet to come

By Matt Taibbi
January 4, 2013 4:25 PM ET
national affairs secrets of the bailout taibbi
Illustration by Victor Juhasz

It has been four long winters since the federal government, in the hulking, shaven-skulled, Alien Nation-esque form of then-Treasury Secretary Hank Paulson, committed $700 billion in taxpayer money to rescue Wall Street from its own chicanery and greed. To listen to the bankers and their allies in Washington tell it, you'd think the bailout was the best thing to hit the American economy since the invention of the assembly line. Not only did it prevent another Great Depression, we've been told, but the money has all been paid back, and the government even made a profit. No harm, no foul – right?


It was all a lie – one of the biggest and most elaborate falsehoods ever sold to the American people. We were told that the taxpayer was stepping in – only temporarily, mind you – to prop up the economy and save the world from financial catastrophe. What we actually ended up doing was the exact opposite: committing American taxpayers to permanent, blind support of an ungovernable, unregulatable, hyperconcentrated new financial system that exacerbates the greed and inequality that caused the crash, and forces Wall Street banks like Goldman Sachs and Citigroup to increase risk rather than reduce it. The result is one of those deals where one wrong decision early on blossoms into a lush nightmare of unintended consequences. We thought we were just letting a friend crash at the house for a few days; we ended up with a family of hillbillies who moved in forever, sleeping nine to a bed and building a meth lab on the front lawn.

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Death of the Community Bank

The bailout has set up the end of the Community Bank... the type of banking institution that serves Main Street and small business.

Basel III - requires these banks to increase their cash reserves to levels many can't meet. Result - big is going to buyout small, aka consolidation.




"One resists the invasion of armies; one does not resist the invasion of ideas" Victor Hugo

The "too-big-to-fail" banks actually are bigger than before...

“The largest banks have underperformed not only on returns but also on efficiency, revenue, risk, transparency, reputation and stock price,” said well-known bank analyst Mike Mayo of CLSA, according to a report by Bloomberg. “When we ask, a large majority of investors indicate that breakups — divestitures, downsizings and de-mergers — would be good for stock prices.”

There’s no question that even after shedding billions in assets, the three big banks still are too big. Bank of America has sold $60 billion worth of assets since 2010, and it remains a sprawling financial supermarket hobbled by reams of bad debt on the books.

The too-big-to-fail banks actually are bigger than before the near-collapse of the financial system. Recall that the crisis led JPMorgan to buy Washington Mutual and Bear Stearns. Bank of America grabbed Merrill Lynch and Countrywide (much to the bank’s regret). Wells Fargo (NYSE:WFC) acquired Wachovia.

Indeed, there actually are fewer, bigger players today, with more risk concentrated in a smaller number of institutions.

But as much as the system would be well-served by making the big three smaller through sales or spinoffs, recent share-price outperformance probably will make it hard for Mayo to find a wide and receptive audience.

Mayo is almost certainly right in his analysis and prescriptions, but don’t underestimate the power of the status quo when stocks are rallying so fiercely in its favor. Short-term profits have a way of trumping sound strategic thinking.

That’s how we got the financial crisis in the first place.


"I'm as mad as hell, and I'm not going to take this any more!"
- Howard Beale