Bank of America Spends $7 Billion on Chinese Bank, Then Lays Off 30,000 Workers

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Sat Dec-13-08 06:48 PM
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Bank of America Spends $7 Billion on Chinese Bank, Then Lays Off 30,000 Workers

http://firedoglake.com/2008/12/13/bank-of-america-spends-7-billion-on-chinese-bank-then-lays-off-30000-workers/

Bank of America Spends $7 Billion on Chinese Bank, Then Lays Off 30,000 Workers
By: Ian Welsh Saturday December 13, 2008 1:00 pm

Ah, the sweet smell of your TARP money being used to batter the US economy senseless. First Bank of America gets $15 billion of TARP funds, and issues $9 billion worth of bonds guaranteed by the FDIC, then it spends $7 billion to buy a big stake in a Chinese bank.

Now Bank of America announces it's laying off 30,000 to 35,000 workers. Why? In part because it took over Merrill Lynch and wants to "eliminate redundancies". Now, that's entirely rational for Bank of America, as is spending $7 billion to buy up shares in a bank cheap (they got a below market price). But it's not good for the US because that money was meant to be loaned to Americans and because layoffs make the economic situation worse (and those laid of workers will immediately cost the government a ton of money.)

Economic decisions which can be rational for individual companies or people can be very bad if everyone starts doing them. A large part of the government's job at this time is to make sure that as few people are getting laid off as possible, that money loaned to banks is being loaned to businesses and consumers and so on.

To put it simply, such money should be contingent on not laying off workers. It should be contingent on actually using the money to lend. If you aren't using the money to lend; if you are laying off workers, then you shouldn't get the money. This is especially the case with purchases�if a company is in good enough shape to be doing acquisitions, it's in good enough shape that it shouldn't need Federal help.

In particular, to repeat again, banks need to not be allowed to buy up other financial firms. There's perhaps little that can be done about them buying shares in a Chinese bank, but Merrill should not have been sold off for cents on the dime, and the same is true of most other firms. As long as banks know that there is a chance they'll be able to buy up other banks and prices that won't repeat again for 70 years or so, they're going to horde cash, rather than lending it. It needs to be made clear that any financial firms going bankrupt will be run by the FDIC and will not be available for purchase for some time.

Over $8 trillion now has been used in a so far unsuccessful attempt to stabilize the financial sector. The reason it has failed is that the interventions have not had strong rules attached to them about what must be done with the money given. This is exactly opposite to how government money should be used. The public has not been coughing up all this cash for the good of banks and so they can keep paying bonuses and buying each other up, it has been coughing that money up in the understanding that the money is supposed to stop the crisis and fix the economy. If the money is not doing that, then it is being wasted; indeed, worse than being wasted, it is being stolen from ordinary taxpayers to enrich the already rich.