Some of the biggest bailout banks in the country posted billion-dollar profits during the second quarter. Will the boost provide a lift for smaller companies, or do small-business owners who are forced to make it on their own have a right to be upset?
The federal government, which owns a chunk of both Bank of America and Citigroup (among others), will see a slice of those revenues. And other profits will likely be used to pay off long-term debts both private and public, which the bailouts banks have accumulated over the past several years.
But news of record profits for bailout companies could have a particular sting for high-level execs whose companies continue to tread water.
Toward the end of June several news agencies reported that Citigroup sidestepped government restrictions on paying out exorbitant bonuses by offering employees exorbitant raises instead (some as high as 50%). The recent profits have also fueled rampant speculation that bailout corporations might find a way to provide additional year-end bonuses to their employees, despite tight government regulations forbidding them to do so.
Some of the corporations that reported billion-dollar profits during the second quarter, as well as how much federal bailout money each received:
- Citigroup – $4.3 billion ($45 billion in bailout funds)
- Bank of America – $3.2 billion ($55 billion in bailout fund)
- J.P. Morgan – $2.7 billion ($25 billion in bailout funds)
- Goldman Sachs – $2 billion ($10 billion in bailout)
No doubt what’s good for big business is good for the economy. But the question still remains: Did these banks get off too easy?
Are they being rewarded (in a sense) for business practices that helped plunge the U.S. economy into a tailspin? And, if so, do bailout funds give them license to continue some of those practices unchecked (e.g., escalating annual percentage rates in the consumer credit divisions that continue to push default rates higher and higher, irresponsible spending, etc.)? Or should small-business owners see this as a development that will likely have a positive impact for everyone in the months ahead?
We’d love to know what you think. Feel free to share your opinion in the comments section below.
Source: “Bailed-out banks turn second quarter profits,” by Joseph Weber, The Washington Times, 7/18/09.
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Tags: bailout, ecomony, economics, Finance, Obama, Recession, small business
July 30th, 2009 at 6:50 pm
I think that that the packages were assembled too hastily, not necessarily too quickly. I also think that the large Wall Street Banks have long held strong sway in congress and elsewhere on Capitol Hill, and that their concerns were addressed while those of the rest of the country from small businesses to individual citizens were largely ignored.
Really, if the money spent on the large banks had been given outright back to citizens, much bad debt would have been paid off, banks would have collected more capital that way, and the economy would have responded more strongly.
But, since the Teapot Dome scandal and earlier, D.C. and Wall Street have paid for each other. In many cases, the bonuses paid by these banks were close in value to the bailouts received. Seems kind of pointless.
August 5th, 2009 at 9:11 am
Just once, I would love to see Capitol Hill subscribe to the “trickle up” theory. It seems to be working for cars buyers and Ford Motor Company with the Cash for Clunkers program.
And I would love to see the banks pay back the tax dollars they got through the bail-out program with those billion dollar profits.
August 18th, 2009 at 8:30 pm
Trickle Up now that’s a program that was suggested on the internet and it sounded as though it was a joke, but it works. Send the money out to public not private sector just send people money and they will spend it. Some will wasted it, no different than giving out raises to lower the amount of return to be paid to the government on the bail out money, that is not going out to the real small business any way.
I believe American’s are afraid enough that some of us would pay off credit cards and lower mortgages balances (that makes banks nerves). Those who purchases items would create cash flow, tax revenue and so on. I like the Trickle Up simply because I have had enough of the Trickle Down effect. Because the only thing that has trickled down from Capital Hill on me so far stinks.
In closing it goes down hill it stinks, up hill it’s good but that sounds too much like the last Administrations way of spinning things? The current Administration sounds good but it starting to sound like the same song just louder music to me with a teaspoon of sugar.
August 27th, 2009 at 7:19 pm
It would the right time for the country to slow down on monies going out to lazy men on disabilities
that enjoy drinking beer continously. Any man child except menatally retarded individuals should
be put in work programs for their want of welfare. Stop this loss of money to the Social Security
program. It’s bad in Maine.
Lee Reid