It Stinks!

Robert Reich asks the important question of why will Goldman Sachs receive $1 billion dollars in the event that the CIT Group goes bankrupt while tax payers lose $2.3 billion? It all boils down to 3 simple principle:

1. Politicians and bureaucrats face little or no consequences for mismanaging the public's money.

2. Subsidies and bailouts are determined less by economic logic and more by political connections, accordingly they flow towards large corporate interests.

3. As more of the public becomes net recipients of tax funds, the less vigilant the public shall be towards government waste, corruption and fiscal irresponsibility.

All excellent reasons for limiting the size and scope of the state.

CIT saga is just business as usual

If business lender CIT Group falls into bankruptcy, taxpayers will end up losing $2.3 billion, which is what the firm got from the bailout last year. But commentator Robert Reich says CIT stands to gain about $1 billion from taxpayers' loss.

Kai Ryssdal: Small business owners will be relieved to hear that CIT is still alive. At least as of right now. This country's biggest lender to small and medium-sized businesses is smack up against a Chapter 11 filing, even after a federal bailout. Commentator Robert Reich says the CIT saga is just the latest example of business as usual on Wall Street and in Washington

ROBERT REICH: CIT Group, one of the nation's biggest small-business lenders is on the brink. If its bondholders reject CIT's last-ditch plan, which seems increasingly likely, the company will become the fifth-largest bankruptcy in U.S. history.

And when CIT goes under it will also take taxpayers with it, to the tune of $2.3 billion, which is what the firm got from the Treasury's Wall Street bailout program last December.

But here's an interesting thing. When CIT goes down, Goldman Sachs reportedly will receive a billion dollars from CIT under a 2008 rescue agreement between the two firms.

Now, why will Goldman get a billion, while taxpayers lose more than twice that? Because the Treasury failed to protect taxpayer interests nearly as well as Goldman protected Goldman's interests. And why was that? Incompetence at Treasury? Close ties between Treasury and Goldman Sachs? Just bad luck?

You can rule out bad luck because almost the same thing happened last fall after the Treasury bailed out AIG, which owed Goldman $13 billion. AIG still hasn't paid us taxpayers and probably never will. But when we bailed out AIG, Goldman got repaid its money.

Goldman has announced record earnings for the first six months of this year, and set aside $11.4 billion for a bonus pool for its executives and traders, which comes to a few billion dollars less than we taxpayers have indirectly channeled to Goldman since last fall.

I don't want to pick on Goldman. All top five Wall Street banks have profited nicely from the bailout, all have increased their market shares, all their executives and traders are now making bundles, and all continue to have close ties to Washington.

Now, some in Congress want to set limits on Wall Street pay. This is one of several measures being considered for financial reform. The Treasury doesn't like the idea, but it sounds reasonable to me. As long as we taxpayers continue to bail out the Street, which seems likely to continue for some time, our tax dollars will inevitably find their way to these giant banks and their executives and traders.

Just follow the money, and watch what happens with CIT.
RYSSDAL: Robert Reich is a professor of public policy at the University of California Berkeley.

http://marketplace.publicradio.org/display/web/2009/10/07/pm-reich/