Banking's Stealth Bailout

You may have not noticed, but we are in the middle of the third major bailout of U.S. and European banks and their investors in as many years. First came the original financial-sector rescue after the 2008 collapse of Lehman Brothers, which has so far shifted an estimated $3.7 trillion in banks’ losses and problem assets to the taxpayers’ bill in the U.S. alone. Then came the European Union’s €750 billion bailout of its weaker members—essentially another attempt to stabilize Europe’s banks, which together funneled some $2 trillion into the bonds, banks, and real-estate sectors of Europe’s shakiest economies: Greece, Ireland, Portugal, Spain, and Belgium.

Now, near-zero interest rates are shifting hundreds of billions from the pockets of savers—including millions of pensioners now earning next to no interest on their investments—into the coffers of banks and their investors. This stealth bailout—effectively a giant tax on savers—is worth nearly $1 trillion annually in the U.S. alone, according to an estimate by Offit Capital Advisors. Worse, critics argue that this little-mentioned bailout isn’t just fleecing savers, it’s slowing the global recovery. By sucking money out of the real economy and into the financial sector, low interest rates are doing the opposite of what they’re supposed to do—delaying restructuring of the West’s stricken financial sector and stifling the economy instead of reigniting growth.'

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