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The Lebowski Blog: The US Bank Bailout Was Never and Will Never Be Repaid

Blog posts reflect the views of their authors.

Where's the f'ing money, Lebowskil?

Was the US bank bailout paid back?  A lot of pundits have said yes.  This was a coordinated attempt by the bank-hired communications industry in post-crisis US to paint the Bailout funds as a temporary measure that didn't cost the axpayers anything in the end.

In fact, the story goes that the US taxpayer actually made money if you believe the spin.

Don't believe the spin.

It's true that the Toxic Asset Relief Program (TARP) funds were paid back.  For those that were following the machinations of the US/Global financial crisis (or for those who saw Michael Moore's film Capitalism: a Love Story) you've probably heard of TARP.

TARP was set up to by 'toxic assets' from US banks.  What was a toxic asset?  Basically it was billions of dodgy financial products and crummy mortgages.  The program was maligned for a host of reasons, but after the $700 billion had been doled out it has since been returned and repaid according to the companies.  This is because the toxic assets - the assets worth nothing - were bought back by private companies from the government.

The payback of TARP has been all that banks have focussed on. But TARP was peanuts compared to a host of other funds.

According to some solid estimates, the total of the bailout will run up to around $23.7 trillion dollars.


Many of these programs don't cost anything on paper for a government.  However they were often swapping crappy assets (usually mortgage-backed investments) that were being over valued for debt.  On the books it's a straight swap dollar for dollar.  But in reality, the government is on the hook for the losses.

I addition, lots of the money paid back was simply borrowed from a different fund.  Now the banks are missing payments and rolling over what they have to pay.

Front door bailouts

Temporary Liquidity Guarantee Program - $345 Billion - This program gave short term debt to banks to balance their books, because they weren't able to get it themselves. 

Quantitative Easing - QE or printing money has been used by the fed extensively since the recession.  The Fed has essentially been printing money and then loaning it out to banks at a low interest rate to try to get banks loaning again.  Never mind that historically this doesn't work.

The fed gets the money to banks not just by handing it over.  They have been buying bad deals from banks in exchange for the cash - commercial loans that will default eventually, mortgages that will default eventually, etc.

Term Auction Facility -  cCose to $1 trillion program run by the US federal reserve where a bank would offer up some collateral (could be something good or some junk) in exchange for cash on hand during the crisis.  

Primary Dealer Credit Facility - This program loned out close to $9 trillion to banks through the Fed by having the banks offer up an asset in exchange for cash.

Term Asset Backed Securities Loan Facility - About $1 trillion loaned out to banks and hedge funds to help promote consumer loans - car loans, home mortgages, credit cards, etc.

Foreign Exchange Swap Programs - $550 billion was lent out to other central banks by swapping currencies (Euros, Yen, etc) for US dollars in order to, in turn, loan them out to commercial banks abroad and stave off global financial collapse from a crisis in Europe.

Commercial Paper Funding Facility - Trillions were committed to buying commercial paper from a host of agencies including Royal Bank of Canada.  In this instance the fed was basically buying corporate debt.

Back Door Bailouts

Mortgage Settlement - This settlement allowed backs to keep shady second tier loans and only garnered a $25 billion fine for widespread fraud.  The settlement let banks off with no jail time and did relatively little for distressed homeowners.

Interest Rate Swaps - These make up 82% of the derivatives trade and go like the following.

A bank enters into an agreement with a state or city to loan them money at an interest rate.  But locks that rate in with a swap to ensure that it won't go higher than it's current level.  But instead interest rates fell! Now banks (who are getting cheap loans and access to billions in bailouts) are paying 50 times less than what these governments are paying and getting a windfall because of it.  Of course rates are low for the banks because they crashed the economy and prompted the fed to bring in ultra low interest rates.

Interest Rate Spreads to the US Government - The Fed is lending money to the banks are ultra low interest.  But the fed cannot, legally, lend money directly to the government.  These types of safeguards are there to prevent something called, hyper-inflation.  In the past, governments who couldn't raised money "printed" it and then gave it to themselves precipitating an inflationary cycle that lead to a currency becoming worthless...wheelborrow-full-of-currency-to-buy-bread kind of scenario.  Though the Fed can and does still print money, they just ensure that the government can't get at it directly, so they run it through a bank.  The problem is, though the banks are getting short term loans at really low interest, they are then turning around and loaning this money to the government at 3-4% interest.  That's right, charging the government for it to loan money to itself.

Fed Paying Interest on Excess Reserves - Banks are apparently sitting on cash.  Rather than loan it out to consumers get the capitalistic cycle going again, they are parking it at the federal reserves at a HIGHER interest rate...the fed says it has been doing this to fight inflation.  Again, paying more money to banks not to loan it out cheaply.


The Lebowski Blog tracks big piles of money.  It appears regularly on the Toronto Media Co-op.

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