100 Years of Debt

About a month ago, I started an effort at tracking where our future tax dollars will be going via these bailouts. One of the results of my research was to discover that, while the US Government is telling us they are providing loans to these banks, what is really happening is that they are buying up massive portions of stock in these banks, and the only money any of the banks are ever actually required to pay the government is the dividend on those stocks, which is 5% for the first five years, and then 9% for every year thereafter. In effect, there is absolutely zero incentive for any of these banks to ever buy back their stock, meaning the government could hold huge portions of ownership indefinitely.

The President did give a slight bit of incentive to the banks by declaring that their top executives may only earn $500,000 and may only collect on their stock options once the debts to the government have been repaid. Barring an old-school, real-world businessman who wants make it his personal mission in life to drag one of these companies out of hock, however, it seems incredibly unlikely that these banks will ever find their way out of government ownership.

For instance, Bank of America, which was "loaned" $45 billion, had its single best year in 2007 when it collected net profits of $4.5 billion. Assuming BofA could operate at their best clip every year, and pay all of their net profits to the government every year, it would take them 19 years to get out of government ownership. In reality, we've got to assume that, even if they wanted to pay the principle to the government off, they would only be apportioning a small percentage of their profits to paying back the government. It seems much, much, more likely that a bank like BofA is probably going to be stuck with the governmenf for the next 100 years.

This is the result of the panicky move to inject merely the initial $350 billion of the TARP funds into the banking system.

And now today, Timothy Geithner comes out to describe what he intends to do with the second $350 billion. Except that now, he tells us that it needs to be yet another TRILLION!

This is literally on the back of a stimulus spending bill that, when debt service is taken into account, is itself about $1.2 trillion already.

Think about this.

The federal government wants you and me to pay for the complete and utter failure of the likes of Bank of America and CitiGroup, the greed of likes of JP Morgan Chase (who took TARP funds to buy other banks, not because they needed it), and the fraud carried out by the likes of OneUnited and Barney Frank.

And the worst part?

With a payback to the government likely to be 100 years out, you get to pay for it, your kids get to pay for it, your grandkids get to pay for it, and their kids get to pay for it.