After trillions of dollars issued to various failed financial institutions to bailout failed companies, to stabilize the financial system of the United States and to stimulate the economy, the banks failed to cooperate.  Bank lending continues to plummet.

So why are trillions of taxpayers’ bailout money going out the door?

Bank Loans Plummet as Obama Boosts Lending Efforts (Update1)
By Emre Peker

April 1 (Bloomberg) — Bank loans fell to a record low in the first quarter as the Obama administration steps up efforts to jump start debt markets and revive corporate lending.

Bank of America Corp. and JPMorgan Chase & Co. led banks in providing $79.6 billion of syndicated loans in the three months ended yesterday, a 61 percent drop from $203.2 billion a year earlier, according to data compiled by Bloomberg. The volume has dropped from $446.4 billion in the first quarter of 2007, before credit markets seized up amid the worst financial crisis since the Great Depression.

Banks are hoarding cash and driving up borrowing costs as Treasury Secretary Timothy Geithner seeks to spur them to resume lending by enticing private investors to buy troubled assets clogging their balance sheets. Companies including casino operator MGM Mirage and toymaker Mattel Inc. are agreeing to pay higher interest rates to maintain their credit lines.

“Banks are very much reducing their credit commitments overall, there’s no question about that,” Nicholas Bijur, assistant treasurer of PG&E Corp., said yesterday in a telephone interview. “In addition to the dollar amount, the pricing terms seem to have changed.”

When will the US government stop the senseless bailout of failed financial institutions and their greedy insiders?

When will the US government demonstrate they value the taxpayers and the voters more than the “too big to fail” financial corporations?

When will the US government put the same amount of money towards people who pay the taxes and those that have lost the jobs, homes and their dignity of no fault of their own?

Jobless rates are rising higher and so are home foreclosures. President Obama argued that Bush’s “trickle down approach” has failed. So how is giving trillions to financial corporations to help the economy not a trickle down approach?

ADP Job Report for March 2009

Europeans are protesting their anger towards failings of  government and corporate leaders.

Financial Rescue Nears GDP as Pledges Top $12.8 Trillion (Update1)

By Mark Pittman and Bob Ivry

March 31 (Bloomberg) — The U.S. government and the Federal Reserve have spent, lent or committed $12.8 trillion, an amount that approaches the value of everything produced in the country last year, to stem the longest recession since the 1930s.

New pledges from the Fed, the Treasury Department and the Federal Deposit Insurance Corp. include $1 trillion for the Public-Private Investment Program, designed to help investors buy distressed loans and other assets from U.S. banks. The money works out to $42,105 for every man, woman and child in the U.S. and 14 times the $899.8 billion of currency in circulation. The nation’s gross domestic product was $14.2 trillion in 2008.

President Barack Obama and Treasury Secretary Timothy Geithner met with the chief executives of the nation’s 12 biggest banks on March 27 at the White House to enlist their support to thaw a 20-month freeze in bank lending.

“The president and Treasury Secretary Geithner have said they will do what it takes,” Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein said after the meeting. “If it is enough, that will be great. If it is not enough, they will have to do more.”

Commitments include a $500 billion line of credit to the FDIC from the government’s coffers that will enable the agency to guarantee as much as $2 trillion worth of debt for participants in the Term Asset-Backed Lending Facility and the Public-Private Investment Program. FDIC Chairman Sheila Bair warned that the insurance fund to protect customer deposits at U.S. banks could dry up because of bank failures.

‘Within an Eyelash’

The combined commitment has increased by 73 percent since November, when Bloomberg first estimated the funding, loans and guarantees at $7.4 trillion.

“The comparison to GDP serves the useful purpose of underscoring how extraordinary the efforts have been to stabilize the credit markets,” said Dana Johnson, chief economist for Comerica Bank in Dallas.

“Everything the Fed, the FDIC and the Treasury do doesn’t always work out right but back in October we came within an eyelash of having a truly horrible collapse of our financial system, said Johnson, a former Fed senior economist. “They used their creativity to help the worst-case scenario from unfolding and I’m awfully glad they did it.”

Federal Reserve officials project the economy will keep shrinking until at least mid-year, which would mark the longest U.S. recession since the Great Depression.

The following table details how the Fed and the government have committed the money on behalf of American taxpayers over the past 20 months, according to data compiled by Bloomberg.

===========================================================
                                  --- Amounts (Billions)---
                                   Limit          Current
===========================================================
Total                            $12,798.14     $4,169.71
-----------------------------------------------------------
 Federal Reserve Total            $7,765.64     $1,678.71
  Primary Credit Discount           $110.74        $61.31
  Secondary Credit                    $0.19         $1.00
  Primary dealer and others         $147.00        $20.18
  ABCP Liquidity                    $152.11         $6.85
  AIG Credit                         $60.00        $43.19
  Net Portfolio CP Funding        $1,800.00       $241.31
  Maiden Lane (Bear Stearns)         $29.50        $28.82
  Maiden Lane II  (AIG)              $22.50        $18.54
  Maiden Lane III (AIG)              $30.00        $24.04
  Term Securities Lending           $250.00        $88.55
  Term Auction Facility             $900.00       $468.59
  Securities lending overnight       $10.00         $4.41
  Term Asset-Backed Loan Facility   $900.00         $4.71
  Currency Swaps/Other Assets       $606.00       $377.87
  MMIFF                             $540.00         $0.00
  GSE Debt Purchases                $600.00        $50.39
  GSE Mortgage-Backed Securities  $1,000.00       $236.16
  Citigroup Bailout Fed Portion     $220.40         $0.00
  Bank of America Bailout            $87.20         $0.00
  Commitment to Buy Treasuries      $300.00         $7.50
-----------------------------------------------------------
  FDIC Total                      $2,038.50       $357.50
   Public-Private Investment*       $500.00          0.00
   FDIC Liquidity Guarantees      $1,400.00       $316.50
   GE                               $126.00        $41.00
   Citigroup Bailout FDIC            $10.00         $0.00
   Bank of America Bailout FDIC       $2.50         $0.00
-----------------------------------------------------------
 Treasury Total                   $2,694.00     $1,833.50
  TARP                              $700.00       $599.50
  Tax Break for Banks                $29.00        $29.00
  Stimulus Package (Bush)           $168.00       $168.00
  Stimulus II (Obama)               $787.00       $787.00
  Treasury Exchange Stabilization    $50.00        $50.00
  Student Loan Purchases             $60.00         $0.00
  Support for Fannie/Freddie        $400.00       $200.00
  Line of Credit for FDIC*          $500.00         $0.00
-----------------------------------------------------------
HUD Total                           $300.00       $300.00
  Hope for Homeowners FHA           $300.00       $300.00
-----------------------------------------------------------
he FDIC’s commitment to guarantee lending under the
Legacy Loan Program and the Legacy Asset Program includes a $500
billion line of credit from the U.S. Treasury.

How will Wall St respond to this?  Not well I imagine, but no short term pain then no long term gain.  Isn’t this the type of change President Obama was promising or was that just another unfulfilled Washington campaign promise long gone by.

Part I: Geithner’s Plan “Extremely Dangerous,” Economist Galbraith Says

From The Business Insider, March 23, 2009:

Tim Geithner has finally revealed his plan to fix the banking system and economy.  Paul Krugman, James Galbraith, and others have already trashed it.

[We spoke with noted economist Galbraith this morning. In the accompanying segment, he calls the Treasury Secretary’s plan “extremely dangerous.”]

Why?

In short, because the plan is yet another massive, ineffective gift to banks and Wall Street. Taxpayers, of course, will take the hit

Why does Tim Geithner keep repackaging the same trash-asset-removal plan that he has been trying to get approved since last fall?

In our opinion, because Tim Geithner formed his view of this crisis last fall, while sitting across the table from his constituents at the New York Fed: The CEOs of the big Wall Street firms.  He views the crisis the same way Wall Street does–as a temporary liquidity problem–and his plans to fix it are designed with the best interests of Wall Street in mind.

If Geithner’s plan to fix the banks would also fix the economy, this would be tolerable.  But no smart economist we know of thinks that it will.

We think Geithner is suffering from five fundamental misconceptions about what is wrong with the economy.  Here they are:

The trouble with the economy is that the banks aren’t lending. The reality: The economy is in trouble because American consumers and businesses took on way too much debt and are now collapsing under the weight of it.  As consumers retrench, companies that sell to them are retrenching, thus exacerbating the problem.  The banks, meanwhile, are lending.  They just aren’t lending as much as they used to.  Also the shadow banking system (securitization markets), which actually provided more funding to the economy than the banks, has collapsed.

The banks aren’t lending because their balance sheets are loaded with “bad assets” that the market has temporarily mispriced. The reality: The banks aren’t lending (much) because they have decided to stop making loans to people and companies who can’t pay them back.  And because the banks are scared that future writedowns on their old loans will lead to future losses that will wipe out their equity.

Bad assets are “bad” because the market doesn’t understand how much they are really worth. The reality: The bad assets are bad because they are worth less than the banks say they are.  House prices have dropped by nearly 30% nationwide.  That has created something in the neighborhood of $5+ trillion of losses in residential real estate alone (off a peak market value of housing about $20+ trillion).   The banks don’t want to take their share of those losses because doing so will wipe them out.  So they, and Geithner, are doing everything they can to pawn the losses off on the taxpayer.

Once we get the “bad assets” off bank balance sheets, the banks will start lending again. The reality: The banks will remain cautious about lending, because the housing market and economy are still deteriorating. So they’ll sit there and say they are lending while waiting for the economy to bottom.

Once the banks start lending, the economy will recover. The reality: American consumers still have debt coming out of their ears, and they’ll be working it off for years.  House prices are still falling.  Retirement savings have been crushed.  Americans need to increase their savings rate from today’s 5% (a vast improvement from the 0% rate of two years ago) to the 10% long-term average.  Consumers don’t have room to take on more debt, even if the banks are willing to give it to them.

The two charts below from Ned Davis illustrate the real problem: An explosion of debt relative to GDP.  The first is Nonfinancial Debt To GDP.  The second is Total Debt To GDP.

In Geithner’s plan, this debt won’t disappear.  It will just be passed from banks to taxpayers, where it will sit until the government finally admits that a major portion of it will never be paid back.

For more coverage including charts, see The Business Insider.

Part II: Geithner, Obama Kowtowing to “Massively Corrupted” Banks, Galbraith Says

Like it or not, many people seem to be resigned to the idea there’s no alternative to the public-private investment fund scheme Treasury Secretary Geithner detailed this morning. (Click here for part one of our discussion of the plan.)

That’s hogwash, says University of Texas professor James Galbraith, author of The Predator State. Of course there’s an alternative: FDIC receivership of insolvent banks.

Aside from being legally proscribed, the upside of FDIC receivership is the banks are restructured and reorganized for potential sale (either in whole or parts), Galbraith says. Such was the fate in 2008 of, most notably, Washington Mutual and IndyMac.

Crucially, FDIC receivership also means new management teams for insolvent banks; and Galbraith notes new leaders will have no incentive to cover up the fraudulent or predatory lending practices of their predecessors. Given the entire system was “massively corrupted by the subprime debacle,” the professor believes criminal prosecutions on par with the aftermath of the S&L crisis – when hundreds of insiders went to jail – is a likely (and necessary) outcome of the current crisis.

But don’t expect to see many “perp walks” if Geithner’s current plan comes to fruition. That’s one reason Galbraith called the plan “extremely dangerous” in part one of our interview.

So why isn’t the Obama administration pushing for FDIC receivership? “Political influence of big banks,” the economist says.

Other renown economists agree.  One is Paul Krugman of Princeton University, NY Times Columnist and Nobel Prize winner feels Geithner’s plan won’t work and disagrees with with Larry Summers and Ben Bernanke in addition to the Secretary of the Treasury.

Why is government leaderships on both sides of the aisle so hesitant from exploring other options such as the one presented by Galbraith and Krugman?  Is it because it does involve the take over of many of these banks into receivorship and hence breacking the control of current management, shareholders and the contracts that these institutions hold?

Or is it the special interest money that finds its way to campaign funds that make politicians hesitant to be as objective as they should and need to be in the full interest of all Americans and their long term interests but not just those that are tied to the banks?

Looking at the tally of money (source:  opensecrets.org) contributed to our federal government campaigns by commercial banks, it is no small amount.