07/05/2009 05:12 am ET Updated May 25, 2011

Five Ways the U.S. Bailed Out the Bankers

I think that U.S. taxpayers have a real gripe when they consider how they are bailing out the reckless (and feckless) banking system.

Here are five ways Washington reached out to help our banker friends:

1. The most obvious is the TARP money which kept banks afloat when they were sinking under the weight of bad lending policies. To be contrasted is your business. I assure you that if you are operating at a loss and running out of capital, it is highly unlikely that you will find a lender to help you out. What's more, if you do get a loan and then decide that instead of paying back the loan you would rather convert the debt to equity (an ownership position in your company), your banker is not going to jump at the idea. To be contrasted is the Treasury ... willing to convert TARP money to common equity.

2. Keeping rates low. The Federal Reserve is doing everything it can by way of the Federal Funds rate and the purchase of mortgage securities to keep rates low for mortgage lending. The point of course is to help homeowners, but the largest beneficiary of this policy is the banking system, which in the first quarter of 2009 had its largest quarter EVER in revenues earned from mortgage originations.

Obfuscating the "mark to market" rule. Banks have been complaining for the last few years that their net worth was being inappropriately valued (to the negative) by the "mark to market" rule. The argument was that the mortgage securities they held had to be valued at fire sale prices (since there were no buyers for these securities) and that was not fair since the banks had no present desire to sell these securities anyway. And so the politicians got involved - see Wall Street Journal front page, June 3, 2009: "Congress Helped Banks Defang Key Rule." Whatever one thinks of the "mark to market" rule -- and there are arguments both ways -- this should not be a political matter.

Refusing to take an active role in bank policies and management changes. The premise of the TARP funding was always that the U.S. would provide money but would not tell the banks how to run their businesses. The theory was that the government does not know how to run a bank. I understand that but once again assure you that if your lender has to provide capital to your business to keep it solvent, there will most likely be all sorts of loan covenants telling you exactly what you can and cannot do until all the money is repaid.

5. Providing enormous capital to the banking system so to keep moneys flowing for car loans, credit cards, commercial real estate and other forms of commercial lending. Again, the point of this funding is to insure the availability of loans for all the prospective borrowers who want car loans, credit cards, commercial real estate mortgages and the like. But, it is not as if the banking system is lending out this money for free. The bankers make profits on all of these loans - which of course they would not be making had Uncle Sam not stepped up to give them the resources with which to make their products.

While there are reasons for all that the U.S. has done to help out the bankers -- some stronger than others -- the question is whether the U.S. is getting in return a banking system that is sufficiently accommodating to the folks that kept it alive ... the good, old American taxpayer.

Jim Randel is the founder of The Skinny On book series - illustrated and entertaining books about financial topics and personal responsibility.