In 2008 Merrill Lynch faced bankruptcy. It was sold by the government to Bank of America. The bank had been leveraged 37:1 and went under as asset prices all over the world collapsed. The U.S government came in and bailed out the following banks: Wells Fargo, Chase, Goldman Sachs, Morgan Stanley, JP Morgan, etc. The list is almost endless.
The banks were given cash, loans and, with the support of the Federal government, access to make money through a government bond purchase program. The U. S treasury signaled to the banks that it would be buying massive amounts of U.S. treasuries and told the banks to start buying the same bonds. The banks were able to rebuild their balance sheets thanks to the Federal government’s help.
Yet, at the same time, ordinary U.S. citizens were suffering through the same financial crisis. The average citizen saw his wages decline, his savings wiped out and the prospects for employment plummet. However, during the crisis and after, the citizen was given no help at all. To be very clear, the banks were bailed out by the American taxpayer. So as the average citizen worked to pay his taxes which then went to the banks to bail them out, that very citizen was given nothing in the way of financial assistance or support. In fact, the financial crisis resulted in many homeowners being unable to pay their mortgages leading to massive foreclosures nationwide.
- The banks were over leveraged and essentially went bankrupt;
- Bank collapses resulted in an economy that went bust;
- People lost their jobs, saw wages stagnate, and their retirement accounts wiped out;
- Taxpayer dollars were used to bail out the banks;
- The banks then used the assets they held (i.e. mortgages) to foreclose on the same people who provided them funds for their bailout.
And people wonder how revolutions get started.