The Fein Line

In light of the huge profits announced by Goldman Sachs and JP Morgan, I continue to feel that we've been taken for a ride by our Treasury Department (under both Paulson and Geithner).  They rushed through big bailouts for these banks, and these banks were probably in trouble.  But, if you believe Elizabeth Warren (she heads up the Congressional panel that is overseeing the bailout), we're continuing to subsidize these banks.

First, her team's analysis showed that the initial bank investments we all made were done at a 34% discount.  That means that the moment that the money was transferred from the US Treasury to the banks that we lost 34%.  This was before any stock moves up or down, etc.  We just gave them a bunch of free money and didn't get enough value back in return.  Keep in mind that we made these investments at a 34% discount AFTER their stocks had already dropped alot due to investor fears.

Now, the banks are repaying the money and looking to buy back the warrants that they issued to the government.  These warrants were our 'upside' to reward the taxpayers for being the bailer-outer of last resort.  According to what I heard on NPR's Hear and Now yesterday, Elizabeth Warren now also estimates that the government is selling back the warrants to these successful banks at a 34% discount.  No wonder these banks have such huge profits so fast!

I'm glad that the banks are healthy.  There is no doubt that they have returned to health due to the large government bailouts, including money paid to AIG that went right out to banks such as these as part of AIG's obligations.  But, with such financial health, we shouldn't be cutting our share of the upside.  We need people in the Treasury who hold the line for taxpayers.

I'm glad that Ms. Warren is so outspoken.  You can find her on all kinds of shows, including this two part interview from The Daily Show (Part 1 and Part 2).  Let's hope she keeps it up.