Bankruptcy is only for the poor

Head of the Fed Ben Bernanke flatly ruled out a government takeover of major banks, such as Citigroup, that would wipe out stockholders.

Rhetoric is rather different when talking about banks vs. automakers. When they mention GM and Ford, they say the stockholders deserve nothing because they were asleep at the switch. Automaker bankruptcy has almost become a Republican party platform (not that Democrats have not played the same game). But a national bank? Never!

Like GM, Citigroup has been laying the groundwork for its disaster for decades. But when Citibank looked shaky, the government lent it over $25 billion, which was then issued to its executives. End result: people who didn’t need the money got it, and the credit markets are just as tight.

Meanwhile, Delphi retirees may soon be joined at the soup kitchen by GM and Chrysler retirees. Don’t worry, though. The $70 million a year Delphi saves on retiree benefits has already been spent on lawyers and executive bonuses. For at least four years…and probably for ten more after that, unless Delphi disappears entirely.

Some analysts have said that the only real solution for large banks like Citibank and Bank of America, which have proclivities to mergers and acquisitions but have not used money provided by the government to get credit markets going again, is to split them up into much smaller pieces. The government has taken over numerous banks and sold their assets to healthier institutions.

Banks are not automakers. They can be split up piecemeal and have their assets distributed to healthier companies. What’s more, there are many, many, many more banks than automakers. Local banks tend to be fairly healthy; it’s the huge national and multinational banks that are the problem.

Let’s apply the solutions proposed by Corker and his ilk to the banks. No, Corker would never consider wiping out bank executives, much less bank stockholders; but perhaps we should spend our nation’s limited resources on industries that produce things, and not those which are engaged in a wealth redistribution system that leaves nearly everyone poorer.