Ice In The Fall

Consumers have largely been ignored in the Trouble Assets Relief Program as Treasury Secretary Henry Paulson has embraced the questionable “trickle down” notion of helping the big boys at the top to create liquidity in the markets as the money “flows down.” We know it didn’t flow.

Big financial institutions (with banking capacity) used cheap money from the Federal Reserve and the potential of the bailout funding to “de-leverage” – reduce the proportionate debt on their books to comply with regulations that required saner debt loads since some of these big boys became real banks (Goldman Sachs, Morgan Stanley, American Express – banks have stricter controls), to create cash reserves for possible losses and to provide money to buy “valuable failures” (their less-than-prudent competitors) and consolidate the financial industry. The result: with a few scattered local exceptions (small banks that didn’t play the stupid loan game and didn’t get bought out by loan-happy big boys), the only real banking taking place in America right now is with the mega-institutions at the top. JP Morgan Chase, CitiGroup, Wells Fargo and Bank of America.

There’s been an election since with a clear message – the emphasis will be on the consumer, the employee and the homeowner. With the writing on the wall, and a little bit more than two months until there is a change in Administrations, Henry Paulson seems to be waking up to the reality that the fixing at the top has had virtually no impact on most Americans with financial issues created by this meltdown. Since the change in focus is now inevitable, Paulson announced on November 12 that Treasury will no longer use the $700 billion bailout funding to buy troubled assets from troubled banks.

Instead, with writing on the wall morphing into screaming voices, Treasury will use $250 billion of the bailout fund to buy stock in functioning non-banking lending institutions as well as banks (specifically to bolster their balance sheets and encourage them to resume ordinary lending and in support of restoring the real estate market). Paulson also noted that the government was looking at a major expansion of the program into the markets that provide support for credit card debt, auto loans and student loans.

Wow! Two months since the first mega-fall of the markets and well after everyone knew about the subprime meltdown, the Department of the Treasury seems to have discovered that ordinary human beings are actually suffering in a way that makes it impossible to stabilize even the biggest financial institution. With crashing real estate values, plunging retail sales, rapidly escalating unemployment figures. I guess no one told him that 70% of economic activity in this country is based on consumers. Dirty little secret.

I’m Peter Dekom, and I approve this message.