More forced American generosity: helping foreign banks

Yahoo News has the story.

The TARP, a Bush administration policy, provided up to $700 billion in money–that had to be paid back–to banks large and small during the financial crisis.

The idea was that bad loans would eat up all of the banks own capital, leaving the bank with no money except what the depositors and those who buy the bank’s corporate bonds put in.

Remember, this is what makes up the right side (liability side) of a balance sheet of a bank:

deposits (you are lending to the bank)

CD’s (same as deposits, right?)

corporate bonds (the banks go out issue bonds, which people buy. Really the same as above.)

capital (money that investors put in as owners of the bank, plus any previous profits that weren’t paid out to the investors)

The bank takes these deposits and the like, including capital, and lend it out.

The idea is to charge more in interest to the person or company who borrows from the bank than the bank has to pay to the people who deposited in it. This is the “spread”.

So back to TARP: TARP provided a kind of corporate bond that was issued to the government, and meant to substitute for the capital that the banks were allegedly going to lose all of. If a bank loses its capital, remember, no one will want to deal with it. Would you deposit your money in a bank where all the risk of their bad lending was on you, that you would get your deposit money back?

The TARP was lousy policy, but it worked. It worked in the sense that people still put their money in banks, and that there was never the kind of massive withdrawal from the banking system by depositors, like in the Great Depression (1932).

BUT, it turns out that the American government was overly generous in the TARP. Not only did it strengthen American banks, but it also helped provide capital to numerous other foreign banks who do virtually no lending to America or Americans! (Their lending is almost exclusively overseas.)

From the report by Elzabeth Warren’s group:

[The report] cited insurer American International Group, Inc as an example, noting that while banks in France and Germany were big beneficiaries of a U.S.-initiated rescue of AIG, “the U.S. government bore the entire $70 billion risk of the AIG capital injection program.”

U.S. officials should have more closely tracked what banks were doing with bailout money and what operations in which countries were being helped, it said.

“While the United States attempted to stabilize the system by flooding money into as many banks as possible — including those that had significant overseas operations — most other nations targeted their efforts more narrowly toward institutions that in many cases had no major U.S. operations,” the report noted.

“If the U.S. government had gathered more information about which countries’ institutions would most benefit from some of its actions, it might have been able to ask those countries to share the pain of rescue,” the report said.

This is so typical of us. Americans struggle daily just to make it. Meanwhile, our government gives to foreigners. I see this here in Japan all the time. Usually, there is some “expat elite” American who is behind the money trail, sucking it from the rest of us who he sold out a long time ago. But in a number of instances, Washington just isn’t careful about the flow of money. It turns on the taps, and anyone who can reach their fat foreign hand in there, to get a fill, goes to town.

Friends, I tell you, there really should be an audit of Washington money that ends up overseas. Any American entity that receives federal help or federal money should report back on exactly where that money is going if it leaves our shores.

Here in Japan, the biggie, of course, is all the military money. We pay more than our fair share for the mutual defense of Japan. Then, certain political elements here paint us as the bad guys for even being around. (Plus, ordinary Americans who try to settle here are cheated left and right–another post!)

But I also get the strong sense that there is a lot of corporate free riding through tax loopholes. American companies in Tokyo who get overly generous subsidies to keep the business outside of America, and make it less likely that an American will be employed. Why are we (American taxpayers) helping those businesses?

With all the hell raising going on in Washington nowadays, why don’t people raise hell about this?