by Randy Shannon
Treasurer, PA 4th CD Chapter
Progressive Democrats of America
December 30, 2009
The chart at the right from the St. Louis Federal Reserve shows that banks have record low liquid assets, and that they continue to decline even though the recession is over.
These banks must maintain sufficient ALLL, or Allowance for Loan and Lease Losses, to cover their Nonperforming Loans. The chart shows that Nonperforming Loans almost equal the banks’ total assets, and loan losses are growing.
A recent Detroit News story reports that the US Treasury will give GMAC – General Motors Acceptance Corporation – an additional $3.5 billion of capital. This is on top of $13.4 billion already given to GMAC by US taxpayers to prevent GMAC from going bankrupt due to its bad housing loans.
Earlier this week the Treasury announced that it would loan unlimited amounts of money to Fannie Mae and Freddie Mac, removing the renewable cap on taxpayers transfers to the mortgage lenders.
The chart at the right shows that while credit card charge-offs are rising at Bank of America, the provisions for credit card losses are falling. The fall in provisions for credit card losses at Bank of America and the extremely low ALLL to capital ratio is due to another level of speculation by the banks. They are gambling that their attempt to create a false image of high earnings by minimizing the capital to cover losses will pay off in higher stock prices.
The risk to this gamble is that continuing credit card delinquency and more failed home and commercial mortgages will confront the financial system with another crisis of solvency. The banks are willing to take this risk because they continue to directly control the US Treasury and the Federal Reserve and indirectly control a majority in the US Congress. They believe another bailout is a lock.
This control was challenged only once when a storm of opposition to the first bailout by an enraged public resulted in a No vote in Congress. As documented by Michael Moore in his new film, Capitalism, A Love Story, this vote was reversed through a carefully orchestrated campaign in the media and behind closed doors to thwart the public’s will. Treasury Secretary Henry Paulson threatened Congress with the imposition of martial law if the vote were not reversed.
If the first vote of Congress to deny the bailout had stuck, these insolvent banks would have been liquidated and their owners would have taken the losses instead of the US taxpayers. This was the procedure used during and after the depression to deal with banks that were ruined due to either stupidity or corruption. Now that the banks have so much power financially and politically their owners can use the Congress to make the American people cover their losses.
The experience of Japan over the last two decades has already shown that transfering the public treasury to the private banks does not cure the economic crisis that was precipitated by their greed. It actually deepens and prolongs the crisis. There are three reasons.
First, the criminal and incompetent bankers are rewarded instead of punished. In our crisis Goldman Sachs, JP Morgan, Citibank, and others had record earnings and bonuses. These banks are incentivized to continue, even escalate, the speculative practices that lead to the crisis. Their key people hold the positions of power in the Obama administration.
Secondly, by transfering $13 trillion of public money to the banks, their position of power in the government and in the economy are strengthened to the detriment of both democratic decision making and the productive use of capital. The transfer of money to the banks in Japan continued for years without solving the banking crisis. This is the path down which we have started.
Thirdly, the financial crisis precipitated an economic crisis that had been building for years, mainly due to the 30 year decline in workers earnings and their families purchasing power, and the export of productive capital overseas by the banks. Only the reversal of this trend can lay the economic foundation for a financial recovery. The transfer of the public treasury to the bankers instead of into an Industrial and Infrastructure Reinvestment Authority robs the country of any chance to recover.
We can see the data that delinquencies continue to rise. The balance sheets of the banks are again approaching insolvency despite the $13 trillion bailout. This is due to the economic crisis of the working people of this country who are overworked and underpaid, as well as the 7 million unemployed, the homeless, and the hungry.
The bankers solution to this problem is to increase the transfer of public money to their coffers. The Senate healthcare bill that makes it a crime not to buy health insurance is a model of this solution. The cap and trade bill that forces carbon emitters to buy pollution credits from Wall Street banks is another model of this solution. This is the road to hell for the United States that has been laid out by the financial elite and their lackeys in the US Congress and Senate.
A solution to this problem that would result in prosperity for the great majority of our people is really simple in its execution. We don’t need a revolution. The Federal Reserve must be nationalized. The insolvent banks must be liquidated and reorganized with their owners taking the loss. The giant banks must be broken up. The US Treasury must begin to issue greenback dollars instead of borrowing our money from the Federal Reserve. The global war machine must be downsized and production for destruction minimized.
An industrial and infrastructure reinvestment bank must be established with the recovered funds, which would finance by loans and grants building a new energy-efficient transportation system, and the mines, mills, and foundries to supply it. An emergency jobs program must be established to rebuild the social safety net and restore the health of our communities. A national single payer universal healthcare system must be established to make healthcare available to all US residents at a reasonable cost and high quality. A carbon tax must be instituted to reduce carbon emissions and to encourage consumption of low carbon commodities with a public dividend.
The Roosevelt administration’s New Deal showed what Americans can do when the going gets tough. But to get the New Deal started required a massive movement of the people demanding change that ousted the backward and bought-off politicians. The American people voted for this change in 2008. When President Obama won the election he stated that his election was not the change we seek but only the beginning of that change. It has become clear over this year that Obama is surrounded by powerful bankers and blocked by their lackeys in Congress.
The 2010 election must be another step toward the change we seek. There are already several bills in Congress to advance an agenda of peace and prosperity. After 2009 it is much clearer that the financial elite, the insurance companies, the big pharmaceutical companies are supporting war and austerity.
Jason Altmire is working for them when he lobbied with the Blue Dogs to gut the public option in the healthcare bill. Jason Altmire is working for them when he voted to give a $302 billion bailout to foreign banks. Bob Casey is working for them when he voted to deny Americans the right to buy US manufactured drugs from Canada. We need to field honest progressive candidates against these corrupt politicians so that voters have a real choice in November. Progressive candidates must step up in the Democratic primaries and, if necessary, run as independents in the November general election.
U.S. Treasury plans to inject around $3.5 billion into GMAC
David Shepardson / Detroit News Washington Bureau
Washington — The Treasury Department plans to announce as early Wednesday afternoon that it will give GMAC Inc. around $3.5 billion in additional capital, sources told The Detroit News.
Detroit-based GMAC and the Treasury Department have been in talks for months to finalize the amount of money the company would receive. The Treasury Department said earlier this year it would invest up to $5.6 billion more in GMAC — on top of $13.4 billion GMAC has received over the last year.
GMAC spokeswoman Gina Proia declined to say how much the company expected to get.
“As we have previously stated, GMAC has been conducting a strategic review of its business and evaluating options to address the challenges at ResCap and the mortgage operations,” Proia said referring to GMAC’s residential mortgage unit. “Critical objectives in the process would be to take actions that position GMAC for improved financial performance and to repay the U.S. government.”
GMAC obtained bank holding status last December making it eligible for Treasury aid. However, unlike other financial institutions that went through “stress tests,” the Detroit-based auto finance company wasn’t able to raise enough outside capital to assure regulators that it was prepared for a new downturn.
The Treasury Department holds a 35.4 percent equity stake in the company. An official announcement on new funding is expected in the coming days, officials said.
GMAC is the primary lender to most GM and Chrysler dealers and customers, and its financial health is critical to the domestic auto industry’s turnaround.