States Forced to Cut Services to the Bone: The Opportunity Cost of the Bank Bailout
Okay, the bailout of Wall Street isn't going to end up costing us $23.7 trillion dollars, the number that special inspector general Neil Barofsky fired off to call attention to the fact that banks are misusing the trillions we've given them, and are still hiding untold amounts of toxic assets off the books -- aided and abetted by the who-needs-transparency Treasury.
But we have pumped at least $4.7 trillion into the financial sector -- and the pumping isn't over. On Wednesday, Fed chair Ben Bernanke told the Senate Banking Committee that it "may be appropriate" for the government to guarantee the "mountains" of commercial real estate mortgage defaults the banks will likely be facing in the coming months.
At a certain point, these numbers are so huge it becomes hard to keep them in perspective, to be clear what $4,700,000,000,000 means in the real world. But reading about the effects of the massive budget cuts almost every state in the country is being forced to make puts the figure in perspective very fast.
And it reminds us, once again, how lopsided the "recovery" has been: with banks that received billions in taxpayer handouts now reporting massive profits and setting aside record amounts for executive bonuses, and the American people continuing to face 9.5 percent unemployment, 10,000 foreclosures a day, and vital services being cut.
So while Goldman Sachs crows about its $3.44 billion second-quarter profit, and Citigroup and Bank of America strut over the $3 billion and $2.4 billion they respectively earned, we are left to think about the opportunity cost of the trillions we have given to Wall Street -- to ponder what else we could have done with that money.
Consider: at least 39 states have imposed budget cuts that hurt families and reduce vital services to their most vulnerable residents. The litany of those affected includes children, the elderly, the disabled, the sick, the homeless, the mentally ill, as well as college students and faculty, and state government workers.
America's states are facing a projected cumulative budget gap of $166 billion for fiscal 2010. Even more budget gaps are expected for fiscal 2011. Total shortfalls through 2011 are estimated at $350 billion to $370 billion -- and could be even higher if unemployment continues to rise.
These are massive numbers. But when you remember that we spent $180 billion to bail out AIG ($12.9 billion of which went straight to Goldman), you realize that that alone would be more than enough to close the 2010 budget gap in every state in the union. Toss in the $45 billion we gave to now-making-a-profit Bank of America and the $45 billion we gave to now-making-a-profit Citigroup and we are well on the way to ensuring that no state's vital service are cut through 2011.
But instead that money has gone to the banks without any fundamental reform of the system, and without any strings attached about how much they had to turn around and lend to help the real economy recover. Or, indeed, without any strings attached about having to tell us what they did with our money. So all across the country the fiscal ax is falling.
According to a report by the Center on Budget and Policy Priorities, at least 21 states have made cuts to public health programs, 22 states have cut programs for the elderly and disabled, 24 states have cut aid to K-12 education, and 32 states have cut assistance to public colleges and universities.
The devastation is in the details:
In California, around 500,000 children face being denied health coverage due to cuts in a welfare-to-work program.
Minnesota has eliminated a program that provides health care to 29,500 low-income 21 to 64 year olds.
Rhode Island has eliminated health insurance for home-based childcare providers.
Maine has cut funding for homeless shelters.
Maryland has cut funding for a school breakfast program.
In Tennessee, an estimated 30,000 to 40,000 seriously ill people are expected to lose hospitalization and other needed medical services.
In Washington, between 7,000 and 17,000 residents will no longer qualify for a public health care plan for people living just above the poverty line.
Utah has cut Medicaid funding for physical therapy, occupational therapy, and speech and hearing services for adults.
Michigan, Nevada, California and Utah have dropped coverage of dental and/or vision services for Medicaid recipients.
Alabama has canceled services that allow 1,100 seniors to stay in their own homes and avoid being sent to nursing homes.
Georgia has cut back on programs that offer the elderly Alzheimer services, drug assistance, and elder support, and made a $112 million cut in an initiative designed to help close the gap in funding between wealthy and poor school districts.
Arizona has cut cash assistance grants for 38,500 low-income families.
Louisiana has made cuts that could keep mentally ill individuals from receiving the medication they need to manage their conditions.
Nevada will make it harder for low-income families to receive cash assistance and health insurance.
Virginia has decreased payments for people with mental retardation, mental health issues, and problems with substance abuse.
Illinois has cut funding for child welfare and youth services programs.
Connecticut has cut programs that help prevent child abuse and provide legal services for foster children.
Massachusetts has ordered cuts in geriatric mental health services, and prescription drug assistance, and made cuts in Head Start, universal pre-K programs, and services to help get special-needs children ready for school.
Keep in mind, all these services are being cut at a time when more and more people are finding themselves in need of them.
It's a perfect storm of suffering.
Looking at all the money that has gone to the banks -- and how well they seem to be doing, using it to bolster their bottom line (and even buy other banks) -- while the real economy is doing so poorly, proves just how wrong the government's approach to the recovery has been.
This approach was on full display during Bernanke's back-to-back testimony in front of the House on Tuesday and the Senate on Wednesday. He pointed to the bulls charging down Wall Street and the ballooning bottom line of the big banks as evidence that the steps taken by the Treasury and the Fed had helped avert a financial disaster. But he admitted that the prospects for increased employment or a decrease in home foreclosures wasn't likely for the next couple of years. And he admitted that "financial conditions remain stressed, and many households and businesses are finding credit difficult to obtain."
But wasn't that the main reason for the bailout -- to get the banks lending again?
Launching into his questioning of Bernanke, Senate Banking Committee Chairman Chris Dodd said, "Americans who have lost, or are worried about losing, their jobs, their homes, or their retirement security have watched as others reap the benefits of our government's response.... When can [the American taxpayers] expect the recovery that they have funded? When will working families see their rally?"
Instead, they are seeing programs slashed, services cut, and state budgets balanced on their backs.
Something is very wrong with this picture.
Follow Arianna Huffington on Twitter: www.twitter.com/ariannahuff
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We bail out Wall Street and homeless shelters are closing for lack of funds.
That says it all.
Lets start a movement...ALL americans are to NOT PAY one dime to their credit cards or mortagages for 3 months...tht'd bring em down...from THE PEOPLE. we are 95% of this economy and get ZERO respect...close our wallets to these schiesters and watch em squirm and fall !!! Then WE THE PEOPLE will have taken control WITHOUT marches or revolution in the historical sense...anyone game ??
I'd rather just not pay taxes. I don't want to send another penny to the totally inept and dishonest Congress, all pretending to be for the little guy while they themselves live like kings and give my money away to their friends over at Goldman. Congress, that's who I want to watch squirm. They are the ones enabling all of these crappy banks with my money. By force.
Your suggestion, will only help the plutocrats.
a functioning democratic government is the ONLY defense from plutocracy.
We need to fix our democracy.
Listen to Moveon and Kucinich, Dean, Sanders, Boxer, the true liberal democrats.
Learn about the conservatives fake democrats, the blue dogs, the DLC, unfortunately, controlling the senate, the democratic party and including Obama, Rahm, Clintons, Lieberman.
Know the enemy:
http://en.wikipedia.org/wiki/Democratic_Leadership_Council
How Rahm Emanuel Has Rigged a Pro-War Congress
http://www.counterpunch.org/walsh10142006.html
http://www.amazon.com/Thumpin-Democrats-Ruthless-Republican-Revolution/dp/0385523289
Kucinich/Dean 2012!
I'm begging everyone here who's reading this to vote out his or her Congressmen if they approved of the bank bailout scam of last fall. That includes our beloved President.
Welcome to America, the new third world country.
The only reason that Arizona seems to have cut as minimal as possible in contrast to other states is because there was a major war waged between the governor and the VERY republican congress over the budget which threatened to shut the entire state down. A budget WAS passed that cut EVERYTHING (even though Arizona has very little to cut because these programs have been attacked fiscally by republicans for years), and the governor (despite her republican affiliation which says allot) was able to line-item veto nearly all of it thankfully. What this means however, is that Arizona is running unfunded programs that will inevitably be shut down when it becomes clear that there is no money there. Senators jon kyle and john mccain have labored for years to decrease needed funding for social assistance while clamoring for military dollars. Arizona has more military welfare than any other state in the country and guess who's on the congressional military budget committee? The entire political spectrum is hopelessly loaded with politicians that don't care about creating equal opportunity for all and times like this are perfect for them to slash and burn with wanton disregard for human lives.
If you start in the middle of the road and then compromise...you end up on the right. Obama has bad bargaining skills!
I'm starting to think that a great depression is just what we need.
Let's see. 4.7 trillion divided by 320 million comes out to about 15 grand apiece. If we all took that money and paid back debt, then than money would have ended up in the banks and would have helped relieve stress on the middle class as well. How about some trickle up?
It was the collapse of the banking system in the early 1930s that turned what would have otherwise been a moderate recession into the Great Depression.
Fortunately the government did not repeat the Hoover administration's mistake again and spent the money needed to prevent another collapse of the financial system so that we did not have a repeat. The same kind of collapse of the financial system would have made the recession a lot worse and could easily have caused a second Great Depression.
And most of the money used to prevent the collapse of the financial system is in the form of loans and loan guarantees, not expenditures. The gurantees do not cost the government anything unless there are defaults, and most of the loans will be repaid with interest. The money that was lent or guaranteed is not revenue that could have been made available to the state and local government as spendable funds.
You said the key words,"collapse of the banking system in the early 1930s" . How is it that we find ourselves in the same situation?
"And most of the money used to prevent the collapse of the financial system is in the form of loans and loan guarantees, not expenditures." Doesn't do a lot to make us feel better seeing as we watched our future vaporize in a matter of days. We have worked and invested for over 30 years for our retirement and children. The inflation that will follow without doubt will totally wipe us out.
The bailout money and the stimulus package are two completely separate things. The bailout money in no way prevented the stimulus package from including more assistance to state and local governments than it finally included.
The stimulus package initially included more assistance to the states and local governments than it ended up including. That the amount was cut was the result of the "moderate" Republicans and "moderate" Blue Dog Democrats whose votes were needed to get it past the Republican filibuster and who insisted on the reductions. Therefore there is no reason to believe that if the bailouts money had not been spent, that there would have been more aid for the state and local governments in the stimulus package.
But without the bailouts the financial meltdown would have been much, much worse and led to a much deeper recession or even a second Great Depression, which would have left the state an local governments in even more dire straights.
It would have been highly desirable if the economic aid to state and local governments had been larger. This is one of the most effective forms of economic stimulus there is. It would have reduced the layoffs of people resulting from the cutbacks in state and local government expenditures. It would be very helpful if the federal government passed a second stimulus that sharply increased the aid to the states and local governments. But the reason this cannot be done is because the "moderate" Republicans and Democrats will not support it. Therefore it will not be able to get past the Republican filibuster.
That, and not loans and loan guarntees that saved the financial system from collapse is where the blame belongs.
What everyone needs to understand is that for every dollar that the government runs up as debt, the Federal Reserve banking cartel gets paid 6% interest. What do you think your income tax dollars go to pay? This interest! The bailout was a banking heist. They did it in 1930. They did it in 1998 when they bailed out Long Term Capital Management (LTCM) and Greenspan gave them $3+ billion of our money then. They set up the President's Working Group 1999- comprised of - The Treasury, Board of Governors of Federal Reserve, SEC, and CFTC. This group gave a detailed report of the near system collapse of the financial markets from the derivitives trading done by LTCM. The SAME over-leveraged shennagins they were doing the last couple years that caused this mess. The Control group headed by non other than Goldman Sachs, JP Morgan, Merrill, Lehman, etc. ALL the same players in the recent fiasco. They STILL have not fixed the problem - THE BANKSTERS!!! They keep giving the keys to the foxes and they keep killing us chickens. Better start demanding the Fed Res charter be revoked as they FAILED to keep the economy sound. WE need to take back control of OUR money from the private bankers before they bankrupt us all! And demand any politician that doesn't start supporting the people to resign.
For five months now, Arianna Huffiington has been seizing on every scrap of bad economic news (which is otherwise predictable in a bad recession) and laying it at the doorstep of Tim Geithner and his "bank bailouts". Entirely neglected in her unrelenting assault on the Obama Administration's reconstitution of lending and investment institutions, and missing from this latest article, is this logic: If the Administration had failed to prevent the collapse of the financial system as it was, the evaporation of all credit in late winter would have cratered the entire economy by the spring, and we'd be in a depression this summer. Alternatively, had the Administration nationalized the financial system, there would have been no recovery of private finance by now -- as has happened -- and the scale of deficits and debt that would now be facing public finance would be so gargantuan as to destroy global confidence in the American system and market. Those were the stakes when Obama and Geithner did what they did. This went way beyond a supposed corrupt failure to penalize bad financial actors. But Ms. Huffington cannot abandon her original criticism, so she has to reinforce it with bad analysis, months later.
I agree. What did she want Obama, et al to do, anyway? This is a quagmire, and there are no easy answers.
Let's see, Obama could have placed restrictions on bonuses to insure quick pay back to the tax payer. Obama could have purchased every loan at market height and revamped the mortgage payments which would have prevented forclosures and stopped the free for all that the housing market was facing. In doing so, the market would not have tanked and millions would not have lost their jobs. By the way, this would have cost less than the bailout! There were many options out there, Bush and Obama focused on the banks and lending only. The bandaide, not the illness. This was where trickle up would have actually saved the system! And if there was nothing a miss, why such a lack of transparency Mr. Treasury?
Obama has "not" done one thing to help the American citizens. All he has done is to except the debt from the criminal actions of the Global Banking Empire. Do citizens know just how much we owe China and other countries to paid for the criminal action from these criminal Bank Empire actions.
Seems if Obama would have been better off creating government control jobs with the money instead of given it as a gift to this Global Empire which has bought out other banks that the government insisted they could , give their CEO's and other personal millions in salaries and bonuses.. Where I work if you screw up and especially perform criminal actions you are fire and prosecution procedures would be filed against you..
While Americans are losing their jobs , health insurance retirement and wages being cut , the same Banking Empire is enjoying the million dollar bonuses , salaries and paid vacations with the very money the Federal institutions has stolen from Americans and given to them..
The American jobs are still being outsourced today some with our OWN money that the previous and Obama's have given to they...
All of this is about how our culture is failing. There is no sense of community, no concern for the community or the folks in it, no understanding by the 1% ers that it is the people that support the system they have abused. This generation of boomers is a disgrace to this country. All for me, screw any and everyone else, to get more for me. Until there is a change in the way most people think about themselves and others, we will not make progress. Unfortunately, Obama's team is part of that culture that got us here.
If they money had gone directly to the taxpayers, they would have spent it. They would have put the money towards their mortgages or used it to buy new homes, thereby fixing the mortgage crisis. Many would have used the money to buy new cars, thereby bailing out Detroit's automakers. Some of the people would have put the money into savings, thereby giving the bank the money to invest and loan, thereby fixing the banking crisis. And some people would have used the money to buy items for their homes, going out to eat, or going on vacation, thereby providing both large and small businesses with customers leading to employment of still others. That's what would have happened if Obama had a bottom up rather than trickle down theory for economic recovery. In all my years (52 of them) I have never been trickled on. The money just never gets this far down.
like i said they stop the trickle by plugging the leaky bank account with another 0 in the balance column
"If they money had gone directly to the taxpayers, they would have spent it."
Not so. The stimulus package includes a large tax cut for households. But they are using most of it to pay off credit card debt and increase their savings. While that is a prodent thing to do from the standpoint of the households, it does not provide the economy with a stimulus.
Not so! Factor in the utilities increase (50% in two years where I live), 14%+ food increase, fuel increases and there went that check! People are pressed to pay off credit card debt due to the ever increasing interest rates and fees! So there is nothing left over to save! I have been out of work for two years and we lost almost everything in the market. We lived on Credit Cards out of necessity not luxury. The housing values have dropped so much that where we had plenty of equity in the home, there is none now. We have never gammed or cheated the system. We were two hard working people with children simply trying to live out the American Dream.
So let me assure you, we like many out there like us, would have passed the money right onto to the major corporations who are still posting profits.
To bad California can’t have as many rain storms as we have Budget Storms. We saw in the news the State Legislators slapping each other on the back, kissing each other on the Cheek, giving high fives, and hugs.
Are you kidding me? The budget still has a debt of over a billion dollars. Oh well that is just money under the bridge. The Governor still signed the budget after all his ranting and raving about a balanced budget.
The California Legislative body should be ashamed of itself. The burden is being carried upon the backs of those that need the help the most. Children, elderly, homeless, the educational system, the California Infrastructure, the security of the State … all have been sacrificed, why?
The above is a question that must be answered by We the People of California. This is our fault. We elected people that we thought could create a balanced budget instead we elected a failing legislative body that gave us a budget that would degrade and weaken our State. . This budget will not maintain necessary services to the people of the State along with strengthening our State’s economic position and security. The legislative body along with the Governor have failed the people of California and the State of California.
There will be an election coming up next year for Governor. Arnold can't run again. thank God. He's not been a good governor.
We need a constitutional convention and get rid of that 2/3rds thing that gives the Republican a bit of power. They have caused so many problems in our state that we need them out.
The politicians always pick on the poor never the rich.
Back when Reagan was governor, he took all the mentally ill people out of the state hospitals and threw them on the street. Many of our people on Skid Row today are those mentally ill people. Reagan said he saved money. Like hell he did.
Republicans do not have a moral center and are perfectly willing to shaft working people and the poor for the benefit of the haves and have mores.
"Children, elderly, homeless, the educational system, the California Infrastructure, the security of the State � all have been sacrificed, why?"
Because the Governator and the Republicans do not want the haves and have mores to bear any of the cost of dealing with the budget crisis, but want to place the entire cost on working people and the poor. One should not be surprised that this is what the party of the rich will do.
Californians made it impossible to raise taxes on the rich and is now a wealthy person's dream state!
Good afternoon Arianna,
While I certainly appreciate the litany of cuts various states are taking to make ends meet....let's take a "second glance" at cuts that will Not be announced!
Republican and Democratic Governors announce they will refund 50% of their salary!
Republican and Democratic Governors announce elimation of Leiutenant Governor position as all agree this is just a "ceremonial position".
Republican and Democratic State Legislators agree to forgoe State Paid Health Insurance.
Republican and Democratic State Legislators agree to conduct out of Sate Business via teleconference to save Taxpayer Funds.
Republican and Democratic Legislators agree to use personal vehicles and to NOT charge taxpayers for mileage or gas.
Finally,
The number one announcement you will never hear...
Republican and Democratic Governors and Legislators agree their work is not so physically demanding they need to maintain the lavish furnishings in their offices and in the State House's. All agree to donate these furnishings to various Social Service departments that serve the poor and indigent.
Have a great weekend,
Vince
I agree with the one about cars. Has anyone added this up? Taxpayers should not pay for anyone to use cars.
I disagree. For instance, my wife is a librarian. Rather than hiring a librarian for each library, our city decided that pages were good enough. Instead she has to drive back and forth between two branches. He salary is pitiful and to have us fund this sort of shenanigans as well would be beyond unreasonable.
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