The 690 small banks that took bailout money are even worse off today than when they took the money, according to a report from the Congressional Oversight Panel created to monitor TARP. This was the $700 billion financial bailout pushed through Congress by Bush under threat of martial law. One in every seven small banks has failed to pay a quarterly dividend when due to the Treasury Department. They simply can't afford the payments, which will nearly double in 2013.
"There is very little evidence to suggest that the (bailouts) led small banks to increase lending," the report says. Indeed they can’t find many commercial property borrowers who don’t already have loans that are under water by 50% or more.
The report concludes that the biggest banks will get even bigger, a large number of bailed-out banks could collapse or consolidate because they can't afford their obligations to taxpayers. That would leave the handful of biggest banks with an even larger share of the banking system. In fact the FDIC seizes banks every week and most are sold in sweet heart deals to larger banks. This will of course make the ‘too big to fail’ banks grow even bigger.
The ’too big’ banks have done just fine, “paying back” their TARP money since they have access to trillions of Fed money to fuel their proprietary trading operations and new accounting rules that value their assets in a manner that would make Enron executives blush. They are really just zombie banks that should be seized themselves but that might lead to questions about them continuing to pay dividends to all the rich Republicans who hold their bonds, let alone the hundreds of billions in executive compensation and millions in campaign contributions (you know, the really important stuff that makes the economy go, the economy for bank executives and the politicians they own).
The small banks in Gulf states were only starting to recover from hurricane losses and now face huge potential losses from the BP disaster as the cascade of business failures sets in. Normally disaster areas boom after a couple of years as Federal money stimulates the local economy in classic Keynesian fashion, this didn‘t happen after Katrina.
Conservatives say that locals will pull themselves up by their own boot straps if the Feds would just leave them alone. Bush did leave them alone by diverting most of the relief money to his rich cronies and the local economy paid the price (no boots, no bootstraps). The 20 billion dollar fund that Obama has secured for the BP disaster could have a real effect if distributed fast enough. The master of the fund says he will give everybody who can prove a loss six months worth of relief up front and if the rules are liberal enough this could work. The corporate media is now circulating the claim that if you take the money that you can’t sue, which is completely false.