Figuring prominently in President Barack Obama’s newly released budget proposal for fiscal 2010 is another massive bank bailout. The Bush administration’s gargantuan $700 billion bank boondoggle was bad enough, but President Obama, not to be outdone, is proposing a positively pantagruelian $750 billion in additional relief for America’s beleaguered money-center banks.
Though the Obama administration continues to deny it, the U.S. government continues to move closer to nationalizing the nation’s largest banks. The last week of February the Federal Reserve and the Treasury Department both announced that the federal government may convert the shares of preferred stock it already owns in Citigroup and other banks into common shares, thereby acquiring voting rights and a greater measure of outright control over the institutions.
“President Barack Obama threw a $75 billion lifeline to millions of Americans on the brink of foreclosure,” the Associated Press reported after the president’s February 18 speech in Phoenix, Arizona, where he unveiled his solution to the mortgage crisis. But the “lifeline” Obama threw comes at a cost, since the government does not create wealth (though it does create money via the Federal Reserve), and the $75 billion that will be spent to “rescue” beleaguered homeowners will have to come from the American economy.
General Motors and Chrysler submitted “financial viability” plans to the U.S. Treasury on February 17 that included combined requests for another $18.6 billion in federal bailout funds — $16.6 billion for GM and $5 billion for Chrysler.
Will the banks be nationalized? That question would have seemed preposterous prior to the $700 billion Troubled Asset Relief Program to bailout major financial institutions. But with the TARP money comes federal control, and that control could be strengthened to the point of full-blown nationalization, particularly if the already congressionally authorized $700 billion is deemed insufficient to “rescue” the banks.