How The Big Banks Are Able To Pay Back The Bailouts And What It Means To You

The big banks are rushing to pay back their massive bailouts. Here is why, where they got the money, what to expect next and how to protect yourself.

Why are they paying back the bailouts? Because the government was ready to limit massive payouts to their top managements. Those banks were hemorrhaging money but now they're highly profitable.

Were did those profits suddenly come from? Most of these banks are swimming in cash for they borrow money at near zero rates from the U.S. government and loan it out at premium rates, such as on your credit cards, and pocket the difference.

They also dumped many of their toxic mortgages on to the Fed but charge fees to collect the monthly payments or to throw delinquent borrowers into foreclosure. In addition, they receive special tax benefits to help shield their profits. Citibank just saved as much as $38 billion based upon a special ruling by the IRS.

Where is the bailout payback money coming from? Stock offerings. Investors now view these institutions as "too big to fail," and therefore protectorates of the U.S. government.

What's next? Re-regulation. But not to protect consumers or to cap banker income. It is to sharply restrict competition among giant lenders so that they can charge higher fees. They also want to continue their risky investments, which is what got us into this mess in the first place. So we will see a new financial reform act and it will be sold to the public as the "Consumer Banking Protection Act" or a similar title.

How can you protect yourself? Get involved. Raise your voice. Lenders are spending $300 million to lobby Congress and helping to draft laws favorable to themselves. You don't have to tolerate this.

And there is one more thing. You can do business with smaller community banks. Those not deemed "to big to fail" and who care about you and value your business.

Dick