RebelCapitalist: Financial Information for the Rest of Us | A Call to Action (Part 2): Take Back Our Money

A Call to Action (Part 2): Take Back Our Money

Jan 07, 2009 | By: Mr_Blue | (0) Comments | Permalink | Tags: financial crisis, economy, bailout, tarp, financial bailout

Are you fed up yet? As of today, the Wall Street Bailout or TARP has not achieved its main objective: to unfreeze the credit markets. There is still very little lending going on and no one knows what the financial institutions are doing with over $278 billion of our money. We are not helpless in sending a message that someone must be held accountable for the decision to make available low-cost, no strings-attached taxpayer money.

We are the ones that are propping up the financial institutions. For some perspective as to how much we are supporting these institutions, let us use JP Morgan Chase as an example. JP Morgan Chase received $25 billion of TARP money. As of September 30, 2008, JP Morgan Chase had $145.8 billion of Stockholder Equity on its balance sheet. Our investment is 17% of its Total Stockholder Equity as of that date (15% if you include $25 billion in Stockholder Equity). Our investment of $25 billion is more than the Preferred Stock ($8.1 billion) and Common Stock ($3.9 billion) combined on its books as of September 30, 2008. This investment is a pretty good chunk of change.

Banks are being stingy with the $278 billion because of a lack of confidence in potential borrowers. They are accountable to other shareholders and Wall Street analysts. But that does not mean that they should not be held accountable for accepting taxpayer money.

Alan Binder, economics professor at Princeton University and former Federal Reserve Vice Chairman, said it best:

With the banks in a state of catatonic fear now, they’re just sitting on the capital. I don’t fault the banks one bit, since this shows Wall Street they’re safer, but then this doesn’t get you much improvement. If you’re taking money from the public purse, we should get something in return, and we’re really not.

On September 19, 2008, Treasury Secretary Paulson said the following:

The underlying weakness in our financial system today is the illiquid mortgage assets that have lost value as the housing correction has proceeded. These illiquid assets are choking off the flow of credit that is so vitally important to our economy. When the financial system works as it should, money and capital flow to and from households and businesses to pay for home loans, school loans and investments that create jobs.

Those illiquid mortgage assets that choked off the flow of credit still exist today. The only thing that is different from September 19 is that certain financial institutions have millions or billions of dollars of our money on their balance sheets. We have a right as taxpayers/shareholders to demand a return on our money. The return we should expect is the loosening of credit.

Instead of tackling the problem of illiquid mortgage assets, Paulson chose to recapitalize financial institutions, allowing them to determine the best way to deploy the capital. Paulson’s blind faith in the same institutions that got us into this mess is laughable and irresponsible. It is too late to hold the Bush administration accountable for this, but it is not too late to send a message to the TARP recipients.

We should dedicate the first quarter of 2009 (original deadline was January 18) to close all accounts with TARP recipients. Local credit unions provide an excellent alternative to TARP recipients. Don’t forget those dreaded credit cards. Most credit unions issue credit cards.

It is time to Take Back Our Money - one way or another. Let’s keep closing our accounts until they say “uncle” and start lending.