Guest Post: The $500 Billion Dollar Bailout That You Never Heard About

Tyler Durden's picture

Submitted by Taylor Cottam

The $500 Billion dollar bailout that you never heard about

When George Bush first was informed about the 9/11 attacks, he was
reading a children’s story to second graders. The attacks caught him off
guard and interrupted his reading of My Pet Goat, and he sat
perplexed as to how he should respond. Ben Bernanke was similarly
blinded by the crisis even though lawmakers on capitol hill had on many
occasions asked him about the possibility of a housing bubble caused by
subprime mortgages.

Bernanke had his My Pet Goat moment in 2008, where in a
panic, he lowered rates all the way down to zero. At least George had a
military that he could send out to fight for him. Poor Ben’s options
were limited, lower rates and print more money, which he did with the
same sense of panic and righteous rage.

At the same time, America shifted from a marginal borrower to a marginal saver and savings rates became more important than borrowing. The Fed’s policy combination of free money with a steep yield curve invite the world to make us their patsy and allows banks to make a killing by lending to the government instead of underwriting loans.

If we can agree that the 0% short term rate put out by the Fed, is
not a market rate, then what should it be? At 1%, the real rates are
still not positive. An honest rate would have to be well above 1%.
Increasing the rate would push up rates on your mortgage and car loans,
but it would also allow you to not lose money in real terms by placing
it in the bank. The Fed reduces borrowing costs, but only by screwing
savers and investors. Again we see the bailout mentality of having the
righteous pay for the wicked’s sins.

Theft at the point of a gun

Don’t downplay the control that the Federal Reserve has over the amount
that you make on your savings account. If we look at the Fed Funds rate
vs the Certificate of Deposits Index (CODI) we see how much control the
Fed has over the money that we get from our savings account.

The CODI takes an average of three month term deposits and tends to very
closely mirror average rates for demand deposits and the interest rate
on short term savings.

The Federal Reserve controls the short term rates that banks give
to each other. Then the banks give you, the depositor, the same “good
deal” on your money. The money that responds directly to the Federal
Funds rate is held primarily in checking, savings and demand deposit
accounts. The amount of money in these accounts, which fetch a negative
real rate of return, tops 6 Trillion.

Think of it as the banks do: the Fed forces us to lend our savings money
to them for free. I would call it theft or a sleight-of-hand bailout.
But the Fed doesn’t rob us themselves, they just allow the banks to. No
matter what you call it, it destroys value in our savings based economy.

In my high school economics course (yes it was basic and my teacher was
hot), one of the first things that we learned was that we always put our
money in the bank instead of the mattress. The two reasons we shouldn’t
place our money in a mattress is:

  1. Banks provide security of principal
  2. Mattress money doesn’t keep up with inflation

But fast forward to today and US banks are insolvent and savings
accounts have a negative real return. That mattress looks like a more
attractive investment alternative, (at least compared to a bank).

In fact, bed company Feather and Black has come up with The Safe Bed
– a divan bed with a safe stuck in the base big enough to keep your
cash, gold and bling bling. Now I really can’t think of a good reason
why I should place my money in the bank.

Theft from other investors
Since long-term yields tend to bounce with the short end, if we
look at the broader fixed income market, the Benjamins grabbing their
ankles in real terms could be many times that. Just to give some
perspective, the current US bond market has been estimated by SIFMA to
be almost $36 Trillion, which includes corporate, government and
agency, municipal, MBS ABS and CDOs. The yield on those investments are
also held back by the Fed.


Why does this matter? Pension funds invest heavily in fixed income
instruments. Many pension funds have been heading for the hills to
escape from fixed income lately because they cannot get sufficiently
high returns. They can’t even get the going inflation rate. Via Alta Assets

per cent of [pension fund] investors reduced their fixed income
allocations over the second half of 2010 as a result of bond market
turmoil, which is expected to drop to a net decrease of 27 per cent
within the next six months.

Since pension funds payouts are
linked to inflation, this compounds our state solvency crisis. Illinois
and California, with their gilded retirement pensions, would at least be
in a better shape if their fixed income assets would at least keep up
with their indexed liabilities.

The stimulus checks that never arrived

We said that rates need to be well above 1%. Cato’s Steve Hanke has called for short term rates to increase to 2%
. If the Fed increases the short term rates to 2%, our deposit returns
increase and we get more money in our pockets. You can see below the
size of the money supply that directly responds to the Fed’s rate
manipulation. The majority of money that would be affected would be
savings deposits, but also demand deposits and checkable deposits. Just
in 2010, an additional 2 points to the Fed Funds rate would have added
$118 Billion into the pockets of depositors.

In the original stimulus, Bush and Congress mailed taxpayers $150
Billion via the IRS. If getting money into people’s pockets is so
important, why ignore the stimulus effect of a positive real interest
rate. Bernanke could raise rates in fifteen minutes like he said on 60
Minutes, and avoid all the bureaucracy of going through the hallowed arm
of the IRS.

Not only could this be thought of as a bank bailout, but also as a
stimulus that we never got. And it would work better because it would
change expectations. Savings would increase.

If we look at 2009 stimulus foregone, and we have another $115 Billion lost opportunity.

If you add the Trillions in fixed income investors, coming from
everywhere from Granny to Calpers, and we estimate another $709 Billion
in 2010 alone and another $692 Billion for 2009.  Add all those numbers
up and we have investors getting the short end of the stick to the tune
of over $1.6 Trillion (data via SIFMA).
 To err on the conservative side, let’s keep the number honest and
round way down to $500 Billion.  After all, the amount that fixed income
investors would get could be much less because the yield curve could
flatten, and because 2% might be too high (it could also be too low). 
But $500 Billion is still greater than all the money that has been spent
so far from Tarp plus the GSE bailout combined.

The reason it is important is because most people never miss what
they never got. But, taking money and opportunity away from savers and
investors to give to banks and borrowers destroys value and creates
pension shortfalls. Putting a number on the madness helps us grasp the
scope of the matter.

But judging what we hear from Bernanke and company, low rates are here to stay, at least until he has another My Pet Goat moment. Let's hope that's sooner rather than later. 

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Angry of Hawthorn's picture

I thought Bush was simply trying not to smile as a "cunning plan" unfolded rather than being perplexed when the 911 attacks unfolded.  Perhaps I best brush up on my 911 report, seems I have been reading too much alternate media.  :)

johnQpublic's picture

its well known that Bush had the goat book upside down


go back and look at the video of that day

notice....the cover of the book is a united states flag, and with the book upside down is the universal distress call


plenty obvious in any pictures you can find of that day

methinks cheney, not baby bush knew what was going down

had plenty of airplane time after that also....flew all over the place in fact

plenty of time for his handlers to get him on the same page

Amish Hacker's picture

Yes, the book was upside down. And a poster on the wall right next to W said, "Reading makes a country great."

And yet, some people still insist that the universe is not ironic.

Ratscam's picture

instead of using "cunning plan" can we please use "cunning stunts" please! 

... let's leave the verbatim to the other readers to toss around the order and sound of the words ....

Thomas's picture

Let's not forget the smaller but more explicit and truly appalling bailout of the banks and airlines when the Fed wrote checks for 7 digits to families of those who died on 9/11 as hush money (keep the courts clean and odor free). I feel bad for the families but who will write my family a check if I get shot or hit by a drunk driver? Maybe it was the expedient thing to do, but it didn't sit well even in the heat of the moment when I heard about it. Above and beyond that, they just jammed money into those industries directly also. And then there were those put options on the airlines taken out a few days prior to 9/11. Those were probably taken out by some Arabs (Osama bin Goldman Sachs). Jeepers. Every time I finish a little rant I just wanna go buy ammo.

jobs1234's picture

I think Sack would say "those grannies should have bought Netflix"

Cleanclog's picture

I agree with what you say. But . . .

"Not only could this be thought of as a bank bailout, but also as a stimulus that we never got. And it would work better because it would change expectations. Savings would increase."   the Bernank and TPTB want us to consume, not save.  That's the point of their medicated wealth effect.  They could have wanted us to save/invest, but really, they want us to spend/consume.

DoChenRollingBearing's picture

The Bearing is very unhappy with having to pay for the bailouts.  Even more, I would feel like a thief if I HAD gotten any of the dirty money.

I do think that in the end, the savers and the prudent will win.  The thieves and the lazy will get their just deserts.  So much money, frittered away for the benefit of so few.  Argh.

Give it back, bitchez!

FunkyMonkeyBoy's picture

"The attacks caught him off guard and interrupted his reading ofMy Pet Goat"

- Er, back in the land of reality, i think you'll find that those crooked criminals the Bush family inbreds knew what was occurring on September 11th 2001 way before it was due to happen.

essence's picture

What do you mean....Baby Bush has a BA from Yale and a MBA from Harvard.
Obviously then, he is highly educated and of course, of above average intelligence and dilligence to have achieved such.

Sacasam off

Thomas, I saw your post got 2 junks and I had to jump in.
Dubya of course, is/was a moron who obviously got where he was on his fathers standing (and I'll stand by that unless a bevy of professors chime in to say.... "oh no, george was a real bright spark at college... don't let his subsequent buffoonery mislead you ")

Shame on Yale & Havard for giving that dunce a degree. Congress should haul their administrators up for questioning instead of Whitney.

And any pussy that junks anonymously deserves to eat s.. and die.
Seriously, if you disagree, at least make the effort to compose a few coherent lines stating your case. Hitting the 'junk' button and then moving on is the ultimate weeny cop out.





alien-IQ's picture

"But, taking money and opportunity away from savers and investors to give to banks and borrowers destroys value and creates pension shortfalls."

I am still amazed that so many intelligent people cannot see the m0st obvious of things: The reason for the above quote is....THAT WAS THE FUCKING PLAN MAN!

Seriously...why do so many people engage in this economic jujitsu in attempting to understand the choices Bernanke has made? Because they are deluding themselves into believing that this motherfucker has the best intentions of the nation or the people in mind . HE DOES NOT. HIS JOB IS TO FACILITATE THE THEFT OF THE NATIONAL TREASURE FOR THE PRIVILEGED FEW. Until you wrapped your Ivy League brains around this simple reality, you will contort yourself into paralysis trying to find the "good" logic to what he's doing.

FunkyMonkeyBoy's picture

FEW? That's not how you spell JEW.

Bearster's picture

Your hate comes across loud and clear.  Your thinking, not so much.

Folks, this is how Hitler rose to power.  Are you ready to elect another Hitler?  Or would a few more years of pain and privation about do it?

Judge Judy Scheinlok's picture

I think if that election came to pass even Diebold Election Systems wouldn't be able to 'fix' things.

essence's picture

Hey, this is good.

On one hand we have some passionate folks stating their case.
And we have a few junking them in anonymity.


That about says it all.
There's players, and then there's coward couch potatoes.

whatz that smell's picture

i like to pet my goat. when it doesn't matter, how i'd like not to say.

remember building seven before you declare this ponzi scheme is dead. amen.

buzzsaw99's picture

I had a huge payroll to meet and I didn't have enough for everyone because the bank paid shit for interest. Therefore I took the payroll money to the big crooked casino and gambled like a pshycho until it was all gone.

The end

lynnybee's picture

everything is just a scam & a fraud since we were deindustrialized DELIBERATELY by WALL ST. & WASHINGTON ......... there's no real legitimate way to "make money" anymore in this country !  ....... who's damn idea was this anyway, ROBERT RUBIN'S ?    Sounds like the typical "banker scam" of making money off of money !    It's all about usery .    .......... typical from ___ bankers  (you fill in the blank, if I type in that word, I'll be junked ) .     .......... it's time this ends, this usery shit.      Now, they've got the whole U.S. & EUROPE deep in debt, just what they want.   Our young people are in debt, the 30-50 year age people are deep in debt for over-inflated homes that are worthless when we go into hyperinflation ............ just like in 1929 they've ruined this country.    WE NEED TO TAKE THEIR DAMN BANK CHARTER AWAY & GET RID OF THE FEDERAL RESERVE BANK .................. LIKE ANDREW JACKSON DID ....... WHO'S THE MAN WITH THE GUTS TO DO IT !?

Trimmed Hedge's picture

Maybe we need a woman to do it....  ; )

Thomas's picture

Trimmed Hedge. What a great pseudonym! If not, your parents were a funny pair.

topcallingtroll's picture

I am also intrigued.  I hope all the mild objectification of women doesn't turn you off too much.  Guys have to be guys you know.  Robo doesn't put up any jigglers anymore.  Probably out of respect for the women hedgies.

MolotovCockhead's picture

Ron Paul...if enough American stand behind him.

topcallingtroll's picture

People notice losses but fail to notice the loss of a potential gain. Economically missing out on an gain $500 is equivalent to an actual loss of $500. This is how politicians and others cheat the people. There are a lot of hidden subsidies out there and the people paying those subsidies rarely notice. I hope you continue to point these out. Increasing interest rates would likely have worsened deflation and the economy but we should never hide who is getting hosed even if we grudgingly.agree with the policy.

Another hidden bank subsidy is fannie overpaying on foreclosed houses as one poster who works in bank repossessions pointed out.

rlouis's picture

If you were to ask Ben Bernbanke if he is a collectivist (or socialist/communist), how would he answer?

Affirm the truth, deny it, or admit it only in a state of drug induced dementia.  

Or claim that he is a kleptocrat?



MarketTruth's picture

"In the absence of a gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good and thereafter decline to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as claims on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to be able to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."

The above was said by Alan Greenspan, 'Gold and Economic Freedom' in 1966.

Hugh G Rection's picture

"The attacks caught him off guard"


lmao! That's a good one. "But my lil bro Marv handles the security for the Dulles Airport and the WTC complex... Gee Whiz!"

HoofHearted's picture

So why fight the Fed? Instead, do what they are rewarding...

I've gotten at least a dozen offers for credit cards with zero interest rate for the next seven up to eighteen months. I say run those fuckers up. Buy a ton of physical precious metals. Get all the underwear and shirts you'll need before the huge increases in cotten prices. Buy yourself several sacks of wheat and rice. And then pay off the cards in seven or in eightenn months by selling a portion of your PMs for BennyBux after they've gone all Weimar like. The book _The Dying of Money_ really points out that this was the winner plan when the hyperinflation hit.

Hugh G Rection's picture



I like your style.  I have a couple of new Chase cards I've been using to load up on silver.


Thanks for helping me finance your assraping on your short position fuckers!

sellstop's picture

The Fed is there to provide lender of last resort function and thus liquidity to the financial system. The Fed only maintains its credibility if it supplies specie that retains it's value. If the liquidity that the Fed supplies to the banks was returned to the Fed it would not debase the currency.

 The Fed also buys paper from the banks, and from the Federal govt. The Fed should see that money returned.

Unfortunately, for the last several decades the banks and the financial institutions have seen their taxes decline. And since finance is a big part of most large businesses, and all have seen their taxes going down, the money is not getting returned to the Fed. This is inflationary.

If the American people would pull their collective heads out of their asses, and insist that the rich pay more taxes, the dollar would retain it's value, inflation would be contained, and the Fed and the federal govt. would have some credibility to help out in a crunch.

We've been brainwashed by the Chicago boys. And Laffer/Reagan/Bush/Limbaugh/Hannity


steve from virginia's picture


Another article about rising short term interest rates. Looks like the ground is being prepared for a rise in short term interest rates.

It will be interesting to see what a 100 basis point rise in funds rate does to the 'house of cards' economy. Blow it up completely is the likely answer.

After all, last summer's absence of Fed stimulus had the world staring @ the abyss and Bernanke hustling up some QE applesauce.

Bernank will have to add more billions in QE to offset any rise in rates, accelerating the rise in rates requiring more QE increasing rates some more requiring even more QE, etc. etc. etc. It all blows up in the end, or the Fed is acknowledged to be irrelevant in which case it all blows up in the end.

macholatte's picture

instead of using "cunning plan" can we please use "cunning stunts" please! 



Q.  What do a band of pygmies and a women's track team have in common?

A.   The pygmies are a band of cunning little runts.

NOTW777's picture

is this the bald guy who works for GMAC?

EconomyPolitics's picture

probably, but about a million years ago, and i think he needs a more flattering picture

Quantum Nucleonics's picture

Speaking of stealth bailouts, let's not forget all the special waivers the banks and car companies received so they could keep their massive tax loss carry forwards, which under normal tax laws would have been written off.  Maybe $200 billion worth, if not more.

freedmon's picture

Raising the deposit rate could give money to savers, it's true, but many people have no savings, only debts. Raising rates would bankrupt them. I have no problem with people defaulting and stiffing the big banks and credit card companies. I'm single so I would happily declare bankruptcy and move on, but if I had a family and a mortgage I know I'd have to think twice.

And yes, the whole plan is to destroy the working and middle classes. Robbing pension funds is an important step to making sure that granny will take that factory job for $1 a day so the US oligarchs can compete with China.

Modus's picture

agreed. i too think the current policy is wrong and short-sighted. instead of letting those who made bad decision (spending too much, borrowing to much money) fail, of course orderly, savers who behaved right get srewed. however you have a point and i totally agree, that if rates are raised to "normal" level that would bankrupt half the us. income and cash flows are just to low to serve the huge amount of debt. on all parts of society and the economy (households, firms, states) rising rates would have a devastating effect.


and you know what i am really worried abot? bottom line, both ways it is going to get pretty ugly. one way or the other.

Downtoolong's picture

One thing I have always found amazing, and disappointing is this: of the tens of thousands of investment options in the market, not a single one guarantees the real purchasing power of your investment after inflation and taxes, not even Social Security. Think about it. The preservation of purchasing power is probably the most important thing that savers are interested in. Yet from all the self-proclaimed genius, talent, and expertise among those in the financial industry and government no such basic investment option emerges (the closest thing I can imagine to it is holding TIPS in a Roth IRA). And the experts wonder why so few people save. It makes me wonder why people in the financial investment industry are always so f$^&ing proud of themselves. If retail investment options were cars, the best of them would be a Yugo.

RexZeedog's picture

You foolish liberal wanker. Bush wasn't sitting there "perplexed".

Rather, because it was clear that USA was under some sort of attack, the protocol is for the president to stay right where he is until it's safe to leave. 

Our presidents have an obligation to stay personally safe during an attack on the USA and when the president is on location, that location has been pre-secured for the visit.

Compared to getting in the motorcade and driving off, staying put is safer - at least until additional security reports come in.

I really get tired of explaining things to idiots...

essence's picture

Thank (deity of choice) that Dubya survived to carry us to "mission accomplished".

Nevertheless, I suspect the country would be better off if more presidents went down with the ship.

spencer's picture

Well, the first paragraph is where I stopped reading. The author is delusional.

You got to be living in a cave to believe Bush wasn't involved in this thing.