US BANKS: BROKE AND THEN VERY GENEROUS

With $700 billion, the US government has kept banks from bankruptcy. However the institutes are transferring money again – to their own shareholders

By Moritz Koch, New York

[This article published in: sueddeutsche.de, 10/30/2008 is translated from the German on the World Wide Web, www.sueddeutsche.de/wirtschaft/289/316175/text/print.html.]

Federal Reserve chairman Ben Bernanke begged and Treasury secretary Henry Paulson even fell to his knees. Congress had to approve $700 billion. Only in this way could the state stabilize Wall Street and prevent the collapse of the US economy. Four weeks before, the bailout program of the American government threatened to fail in Congress. Bernanke and Paulson realized their desires. Congress granted them billions in relief. Now the representatives rub their eyes in reading the newspapers. Several banks hatched under the bailout umbrella want to pay extravagant dividends again. They will pass on the money of the government – to their shareholders.

The goal of the state bailout action was really to stimulate the banks’ awarding of credits that had almost completely succumbed and thus stimulate the economy in general. The state will pump $250 to $700 billion directly in the banks. Up to now 33 institutes participated in the program.

BAILOUT ACTION AD ABSURDUM

Many of the banks do not intend to lend the state money. Prominent senators are perplexed. Using the money for dividends thwarts the purpose of the program, democratic senator Charles Schumer said and called the government to stop the dividend payments.

Unlike Europeans, Americans only tied their bailout program to loose conditions. The institutes had to receive approval before paying out higher dividends. None of the institutes wanted that. Their current dividend plans lead to bailout actions ad absurdum according to members of Congress. As the Washington Post reports, some banks will pour out more capital than they receive from the government within the next quarter.

BIG BANKS WANT TO HOARD STATE MONEY

The Mellon bank of New York received three billion dollars from the state. The institute will pay out $275 million to its shareholders this quarter and $3.3 billion in three years. The defense of the banks is that dividends are paid out of ongoing profits, not from the transfers of the government. Critics insist capital is capital. If the profits were not poured out, more money would be available for credits and benefits for the economy would be greater.

The dividend payments are not the only weak spot of the bailout program. Big banks will obviously hoard the state money to buy smaller rivals at a favorable moment. The New York Times reported a telephone conference call by JP Morgan Chase in which a leading manager proposed that strategy.

Finally, there is the sensitive theme of salaries. According to estimates, $70 billion will flow in Wall Street bonus payments in the coming weeks. When the bankers line their pockets in the ruin, the state should not help out. The New York Attorney General Andrew Cuomo had demanded salary lists. Wage excesses in under-capitalized institutes undermine the industry, according to economic morality and violate the law.

DRAMATIC CHANGEIN US CRISIS STRATEGY

By baz.online

[This article published 11/13/2008 is translated from the German on the World Wide Web, www.bazonline.ch.]

The outgoing US administration throws overboard its strategy for mastering the financial crisis and considers financially helping out credit card companies, car financiers and student loan financiers.

Treasury secretary Henry Paulson declared in early November 2008: “The facts have changed and the situation has become worse.” Therefore the government has abandoned the original cornerstone of its emergency program to take over junk mortgages of banks for an initial $250 billion.

Instead the government will use these funds from the bailout package of $700 billion to buy bank shares directly, Paulson said. This will happen faster than the takeover of rotten credits. Hundreds or even thousands of banks will be supplied with additional capital. The government hopes the credit business will be thereby stabilized.

ORIGINAL PLANS REVOKED

The government abandoned its original plan since additional liquidity had to be pumped into the system very quickly and the credit crunch had worsened. The planned bailout program for rotten credits took too long, the government side said.

Paulson explained further, the government would examine the possibilities for supporting the $1 trillion securities market financed from credit card debts, student loans and car loans. This market essential for money lending and growth had practically come to a standstill, Paulson said. It will take weeks to work out this program.

FAR-REACHING CHANGES

The US Congress is even considering more far-reaching changes in its relief program. The democratic majority will hold a series of hearings on particular measures. Observers expect decisions will be made first after the assumption of office by president Barack Obama on January 20.

Meanwhile unemployment in the US has risen more intensely than since the terror attacks of September 11, 2001. The Department of Labor announced unemployment claims increased 32,000 to 516,000.

OIL PRICE FALLS

The declining oil price made the trade deficit fall unexpectedly in September 2008. It decreased 4.4 percent to $56.5 billion, the trade department reported. This was the smallest amount since October 2007 (sam/ap).

RECORD DEFICIT

The United States ended the first month of its new 2008/2009-budget year with a record deficit. Expenditures in October 2008 surpassed revenues by $237,2 billion, the Treasury department announced. This deficit was more than four times as high as in October 2007. One of the largest spending entries was $115 billion from the bailout package for the banks that will amount to $700 billion altogether.