Who to Believe

If you think back to mid-2008 the government was saying that they couldn't step in and help institutions that were failing because that would create "moral hazard", i.e. knowing you are going to be bailed out makes you willing to take more risks.

So what fix did the Bush & Obama administrations prescribe for a failing economy: bailouts!

Here's a bit from a Washington Post article by David Cho entitled "Banks 'Too Big to Fail' Have Grown Even Bigger":

Large banks with more than $100 billion in assets are borrowing at interest rates 0.34 percentage points lower than the rest of the industry. Back in 2007, that advantage was only 0.08 percentage points, according to the FDIC. Such differences can cause huge variance in borrowing costs given the massive amount of money that flows through banks.

Many of the largest banks reported a surge in profit during the most recent quarter, including J.P. Morgan Chase and Goldman Sachs. They are prospering while many regional and community banks are struggling. Nearly three dozen of the smaller institutions have failed since July 1, including Community Bank of Nevada and Alabama-based Colonial Bank just last week.

If the government continues to back big firms over small, regulators worry that reckless behavior could return to Wall Street.

The government is not only giving bailouts, they are force-feeding the big banks, the ones that are "too big to fail", and making them bigger. On top of that, they are making funds available to the big banks at a lower rate than the smaller banks which gives the big banks a cost advantage over the smaller banks.

So, a year ago there was pious talk about "moral hazard", but the reality is that the US government has done everything -- everything -- that they claimed they should not do.

David Cho quotes Camden Fine, president of the Independent Community Bankers of America, saying:

"To favor one class of financial institutions over another class skews the market. You don't have a free market; you have a government-favored market," he said. "We will never have free markets again if you have the government picking winners and losers."

Rather than spent a trillion or two to help the innocent 99% at the bottom of the economy, the Bush and Obama administrations have shoveled money and insider "deals" to the big corporations to save them.

So all that pious talk about "moral hazard" was a lie. When push came to shove, both the Bush and Obama administrations have leaped to rescue the rich while leaving everybody else on their own trying to escape a sinking economic ship.

Bush loved to lecture that "government is the problem, not the solution". Well, government is a problem for the bottom 98% who are sucked dry by taxes. For the top 2% government is a wonderful solution. Government feeds them through a fire hose faster than they can possibly gulp or swallow. Trillions!