Billion is the new million, in case you haven’t heard

Last week, the federal government announced the good news that many of the nation’s banks had passed a stress test to determine if they could survive a further economic downturn, and that the ones who probably could not survive would only have to raise $75 billion in additional capital to make them able to weather that perfect economic storm.

Good news.  Only $75 billion.  Billion is the new million, in case you haven’t heard.  We throw around the term “billion” pretty cavalierly these days, but it’s hard to make all those zeroes translate into something we can understand.

This lovely Santa Fe home is for sale for $2,5000,000.  That’s a lot of zeroes, but when you say $2.5 million, it seems like a lot less.   If you had $75 billion — that’s $75,000,000,000 — not only could you buy that house, but you could buy 29,999 more just like it.  That mansion costs one-thirty-thousandth of the money a handful of big U.S. banks had better come up with if they’re going to survive another downturn in the economy.

And it isn’t just that they ought to raise the capital, but that federal regulators have ordered them to raise it.

So how are they going to get it?  Through stock offerings, naturally.  Wells Fargo plans to raise $6 billion and Morgan Stanley $2 billion that way. I don’t know about you, but I’m not planning on putting any of my own hard-earned money into stocks offered by desperate banks because the feds are making them.

Bank of America, which needs to raise $33.9 billion, is in the worst mess.  Who on earth would pony up for a new stock offering from that ailing giant?  Maybe the Obama Administration will start ordering companies who have accepted federal aid to buy BofA stock. And why not?  After all, the administration strong-armed Chrysler’s creditors to take the pittance they were being offered so as to make sure the UAW got the best deal possible.

A New York Times editorial wonders whether $75 billion in additional capital will be enough to avoid more bailouts and get the banks lending again. 

How on earth could it, when that “additional capital” is all nothing more than new debt?  That’s what a stock offering is, of course.  You’re offering people a share in the ownership of your company — but the more owners you bring on board, the less each of their shares is worth.  The company is still the same company.  It hasn’t gotten any bigger or any richer.  It’s only gotten more indebted.

And isn’t that a large part of what got us into this mess in the first place?  Big companies — banks, brokerages, auto makers, and many more — taking on more and more debt to remain “solvent” so they could keep right on operating in the way that got them into debt in the first place.

The fact is, the United States government should not be in the business of bailing out failing businesses, ordering CEOs to resign, ordering companies to raise capital, ordering creditors how much on the dollar they are allowed to seek during bankruptcy proceedings.

It’s been a long time since our Constitution has had a new amendment.  I think the time has come for an amendment to end privatized profits but socialized losses.  

The profit part I have no problem with. If companies are successful, more power to them. Let them reap their rich rewards, after paying a fair share in taxes. But when the going gets tough, I don’t ever want to see millionaires coming hat in hand to Congress to beg for my tax dollars to negate their losses.  It’s not only shameful, it’s un-American.