How the government is bailing out banks at your expense

The government has decided not to take over and restructure banks, which would put the losses the banks have accrued by overleveraging bad investments in the hands of the shareholders and creditors where it belongs. Instead, they are flooding the financial system with free money. This drives interest rates that the banks have to pay private investors to near zero. Since banks are now unwilling to lend to anyone but the best credit risks, the spread between what they can get deposits for and what they can charge on loans is way up. Due to this the banks interest earnings have gone way up over the last several months. (See http://brontecapital.blogspot.com/2009/02/series-of-quarterly-numbers.html) The government looks at this and says, Hey! These banks are really making money. All they need is for us to keep pouring money into the system and keep interest rates low so their overleveraged bad investments don't do them in before they can get deleveraged. What the government doesn't seem to care about is that they are making all these interest earnings because the government has driven deposit rates down to near zero. In this way the same people who caused the problem are benefiting from the government solution.

An interesting point illustrated here is that it's not necessary to be a recipient of bailout funds to profit from bailout deluge. If banks don't have too many bad overleveraged investments they can use the windfall profits afforded them by the government dictated low deposit rates to get well and claim they did it without a government bailout. But, this is hardly the case, and I'm sure their not going to volunteer to help pay off the national debt the government has run up to afford them the windfall profits.

It's all one big oligarchy. Once the taxpayers have paid a big price to buy time for the banks to work off their bad investments, the people at the Fed and Treasury can go back to the banks where they used to work and get fat salaries and bonuses for saving the banks with taxpayer money. And, we and our descendants will be left to pay off the federal debt they have run up.