Bailout thread

I'm sure you've seen a poster or politician refer to the bailouts as TARP alone, and say things such as "its almost repaid". Not even. Here's a handy PR full of links for referral:

STEALTH BAILOUT UNDERWAY Bailout Cost Still Increasing, $4.71 Trillion Now Disbursed

Today, the Real Economy Project of the Center for Media and Democracy (CMD) released an update on CMD's total Wall Street Bailout accounting that unlike other bailout assessments includes Federal Reserve loans.

In total, CMD found that over the last month, the funds disbursed by the Federal Reserve, Treasury and FDIC in the bailout have increased by $47 billion to $4.71 trillion. CMD also found that the total outstanding amount has increased $26.4 billion to $2.01 trillion.

$19 billion of the $47 billion increase is from the Preferred Stock Purchases Program of the U.S. Treasury Department. The funds are being used to prop up Fannie Mae and Freddy Mac in order to keep the mortgage market from collapsing entirely after Wall Street destroyed it through the use of derivatives and exotic mortgage-based financial products. The program, which formerly had a cap of $400 billion, was uncapped and given an unlimited credit line in a late, Christmas Eve announcement timed to avoid public scrutiny.

The Federal Reserve is also taking aggressive action to prop up the housing market. The Fed has now disbursed a total of $3.9 trillion, or 83% of the bailout's total. $1.4 trillion, largely in mortgage-backed securities issued by Fannie and Freddie, remains outstanding. Figures come from the Federal Reserve's own accounting.

"The Obama administration keeps telling us the bailout is winding down, but a 'stealth' bailout is underway as funds are being disbursed to prop up Fannie and Freddy with little Congressional discussion or debate," said Mary Bottari, Director of CMD's Real Economy Project. A recent article in the New York Times speculated that Fannie and Freddy are suffering huge losses because they were paying too much for mortgages in a back-door effort to aid mortgage lenders.

Learn more about the 35 programs included in our bailout tally by visiting our Total Wall Street Bailout Cost Table, which contains links to pages on each bailout program with details including the current balance sheet for each program. CMD also publishes a Financial Crisis Tracker, a widget for the table that can be downloaded to websites to get up-to-date numbers on the financial crisis and the bailout.

The Center for Media and Democracy is an independent, non-profit, non-partisan, public interest organization located in Madison, Wisconsin.

The extent of the bailouts now extends into Europe, and is arguably just beginning:

This is the perverse logic of meritocracy. Once a system grows sufficiently complex, it doesn’t matter how badly our best and brightest foul things up. Every crisis increases their authority, because they seem to be the only ones who understand the system well enough to fix it.

But their fixes tend to make the system even more complex and centralized, and more vulnerable to the next national-security surprise, the next natural disaster, the next economic crisis. Which is why, despite all the populist backlash and all the promises from Washington, this isn’t the end of the “too big to fail” era. It’s the beginning.

 

Weekly Audit: How Deregulation Fueled Goldman Sachs’ Scam

by Zach Carter, Media Consortium blogger

Last week, the Securities and Exchange Commission filed fraud charges against Goldman Sachs and underscored what most Americans have believed for some time: Wall Street has rigged the economy in its own favor, and will stop at nothing—not even outright theft—to boost its profits. What’s worse, Goldman’s scam could have been completely prevented by better regulations and law enforcement.

Goldman’s heist

Let’s be clear. “Financial fraud” means “theft.” Goldman Sachs sold investors securities that were stocked with subprime mortgages and had been cherry-picked by a hedge fund manager named John Paulson. Paulson believed these mortgages were about to go bust, so he helped Goldman Sachs concoct the securities so that he could bet against them himself.

Goldman Sachs, like Paulson, also bet against the securities. But when Goldman sold the securities to investors, it didn’t tell them that Paulson had devised the securities, or that he was betting on their failure. By withholding crucial information from investors, Goldman directly profited from the scam at the expense of its own clients. If ordinary citizens did what the SEC’s alleges Goldman did, we’d call it stealing.

As Nick Baumann emphasizes for Mother Jones, the SEC’s suit against Goldman is just the tip of the iceberg. During the savings and loan crisis of the late 1980s, literally thousands of bankers were jailed for financial fraud. Today’s crisis was much larger in scope, yet the Goldman allegations are among the first serious charges of legal wrongdoing to emerge (other complaints have been filed against Regions Bank and former Countrywide CEO Angelo Mozilo). If the SEC or the FBI are doing their jobs, we should see many more of these cases.

Bust ‘em up.

How do banks get away with these kinds of shenanigans and still secure epic taxpayer bailouts? It’s all about their political clout, as Robert Reich notes for The American Prospect. So long as banks are so enormous that they can ruin the economy with their collapse, the institutions will always carry tremendous political clout.

Even in the case of Goldman Sachs, which is too-big-to-fail by any reasonable standard, the SEC’s fraud case is being filed three years after the company’s alleged offense. That’s well after the company rode to safety on the Troubled Asset Relief Program, the AIG bailout and billions more in other indirect assistance—and only after multiple journalists made Goldman’s offensive transactions general public knowledge.

If we don’t break up the big banks, politically connected Wall Street titans will make sure they get bailed out when the next crisis hits, regardless of whatever laws we have on the books.

Fix the derivatives casino

If Congress doesn’t soon pass a bill to break up behemoth banks, it will be neglecting the gravest problem in our financial system today. But several other reforms are needed if Wall Street is ever going to serve a useful economic function again.

As Nomi Prins emphasizes for AlterNet, much of the Wall Street profit machine has been divorced from the economy that the rest of us live in. These days, banks make most of their money from securities trades and derivatives deals. Their actual lending business is taking a beating. That means big banks have very little incentive to promote economic well-being for every day citizens. We need to create these incentives by banning economically essential banks from engaging in securities trades, and make sure all derivatives transactions are conducted on open, transparent exchanges, just like ordinary stocks and bonds.

Better derivatives regulations could help protect against fraud. If Goldman Sachs’ sketchy subprime deal had been subject to market scrutiny on an exchange, it’s very unlikely that any investor would have bought into it. Goldman Sachs almost got away with it because the deal was secretive and beyond the scope of most regulatory oversight.

Protect whistleblowers

The Goldman case also raises significant questions about the government’s enforcement of existing financial fraud laws. Bradley Birkenfeld, a banker for Swiss financial giant UBS, helped the Department of Justice bring the largest tax fraud case in history against his company, which was helping rich Americans hide money from the IRS in offshore bank accounts.

For his cooperation, Birkenfeld was rewarded with a four-year prison sentence, even though nobody else at UBS—nobody—has been sentenced to prison over the scam. As Juan Gonzalez and Amy Goodman emphasize for Democracy Now!, Birkenfeld’s imprisonment could have something to with who exactly is hiding money with UBS.

Gonzalez discusses an interview with Birkenfeld, in which the former banker notes that the bank had a special office to handle the accounts of “politically exposed persons”— American politicians. Moreover, the top brass at UBS includes key advisors to top politicians in both parties. This is exactly the kind of influence smuggling that breaking up the banks would help fix. UBS is a multi-trillion-dollar institution with no less than 27 U.S. subsidiaries.

But protecting Birkenfeld would accomplish still more—by jailing him, the Justice Department is actively discouraging others from coming forward, and making it more difficult for regulators to enforce the law.

Greenspan’s failure

It’s abundantly clear that almost every major regulatory agency charged with curtailing financial excess failed to prevent the Crash of 2008. But that failure doesn’t mean that effective regulation is impossible—it only shows that the regulators in power failed. The top bank regulator in the U.S., John Dugan, was a former bank lobbyist.

As Christopher Hayes demonstrates for The Nation, former Federal Reserve Chairman Alan Greenspan has never had any interest in regulation whatsoever. After the crash, Greenspan insisted that nobody could have seen it coming. But as Hayes notes, many people did—Greenspan simply didn’t listen to them. These days, Greenspan is revising his story, claiming that he did in fact see the crisis coming, but that nobody could have prevented it. That is simply not credible.

Hayes draws a useful parallel Hurricane Katrina, a problem sparked by a natural event that became a catastrophe when regulators failed to take the necessary precautions. The lesson from both Katrina and the financial crash is not that government always screws up—we have plenty of examples of government preventing floods and economic calamity. The lesson we should learn is that people who don’t believe in government will never do a good job governing. As Hayes notes:

If Greenspan couldn’t figure things out, that doesn’t mean others can’t. In fact, developing systems for doing just that is called—quite simply—progress, and Alan Greenspan continues to be one of its enemies.

That is exactly the task that now presents itself before Congress: Developing a system to prevent and constrain economic destruction wielded by Wall Street. The U.S. had a system that did exactly this for more than fifty years. For the last thrity years, it has been systematically dismantled. How well Congress lives up to that challenge will define much of our economic future for decades to come.

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.

 

 

 

Weekly Audit: How Superhero Hilda Solis is Winning the Fight for Workers’ Rights

By Zach Carter, Media Consortium blogger

While the poor judgment of top-level officials at Treasury and the Office of Management and Budget frequently makes the news, there is another, unrecognized economic crew doing terrific work: Officials at the Department of Labor are restoring workers’ rights after nearly a decade of neglect.

To top it all off, President Barack Obama appears ready to make another set of strong, though less high-profile, economic appointments that will help rein in Wall Street excess.

DoL All-Stars

As Esther Kaplan documents in a masterful piece for The Nation, the Department of Labor  (DoL) has been transformed from an agency that enabled corporate excess to one that holds companies accountable.  In less than a year, Labor Secretary Hilda Solis and her team of deputies significantly leveled the playing field between ordinary workers and high-flying executives.

For decades, when conservatives have attempted to confront social problems, they’ve relied on the mantra of enforcement. If we had more cops, we’d fix everything. But as Kaplan documents, under President George W. Bush and his Labor Secretary Elaine Chao, the DoL simply stopped enforcing worker protection laws. From wage theft to mine safety, the Department essentially allowed corrupt employers to do anything they wanted.

That neglect has already ended. Armed with a budget of just $1.5 billion—that’s roughly 0.2% of the Troubled Asset Relief Program—Solis and company have cultivated a list of economic accomplishments that seemed impossible when they took office. As Kaplan details:

“Facing badly depleted enforcement ranks, Solis hired 710 additional enforcement staff, including 130 at OSHA and 250 for the crucial wage-and-hour division, upping inspectors by more than a third. Another hundred will come on next year to staff a crackdown on the misclassification of millions of employees as “independent contractors”–a dodge to avoid paying taxes and benefits–a move that has set off enormous buzz on business blogs. Her team took a plunger to the stagnant regulatory pipeline, moving forward new rules on coal mine dust, silica, and cranes and derricks. She restored prevailing wages for agricultural guest workers and is poised to restore reporting rules on ergonomic injuries.”

Fixing the Fed

Obama also appears ready to make another slate of strong economic appointments at the Federal Reserve, an agency stuffed with free-marketers who helped engineer both an economic catastrophe and resulting bailouts. Obama’s rumored picks—economists Janet Yellen and Peter Diamond and bank regulator Sarah Bloom Raskin—are aggressive about making the economy work for everyday citizens, as I emphasize for AlterNet.

If Congress passes financial reforms similar to what Senate Banking Committee Chairman Chris Dodd (D-CT) has proposed, the Fed’s regulatory responsibilities will actually expand, despite its failures over the past decade. The Fed has never effectively regulated anything and it’s not very concerned with unemployment as an economic problem.

That makes Obama’s pending slate of officials who prioritize bank regulation and broader employment very important. Raskin, in particular, stands out with her strong record as a state banking regulator. If Obama ultimately nominates her, she’ll be the first pure regulator ever appointed to the Fed. The potential picks don’t make up for Obama’s reappointment of bailouteer Ben Bernanke as Federal Reserve Chairman, but they do show that the President is capable of sound judgment.

Strengthening the Dodd bill

But the strength of Obama’s potential Fed nominees doesn’t justify the weakness of Dodd’s financial regulation bill. As Amy Goodman and Juan Gonzalez of Democracy Now! reveal in interviews with economist Robert Johnson and ColorLines Editorial Director Kai Wright , the bill leaves plenty to be desired. Dodd is currently making the rounds and declaring that his bill will end the abuses giant banks deployed against the broader economy, but the truth is, the bill has largely been gutted by bank lobbyists. Here’s Johnson:

“We’re engaged in a Kabuki theater right now, hoping the material is too complex for the American people to understand, declaring victory, and yet basically encoding into law current practices of the banks. Every one of your listeners should ask the question, given this legislation, if the President, House and Senate pass it, will we be in a place where AIG couldn’t have happened, Lehman Brothers couldn’t have happened, Bear Stearns couldn’t have happened, and, more importantly, nine, ten percent unemployment caused by the banking crisis couldn’t have happened? I argue this bill does very little.”

The importance of trust-busting

So Dodd’s bill needs to be substantially strengthened as it moves through the Senate. But there’s plenty of other economic work to be done outside of Wall Street. As Barry C. Lynn and Phillip Longman explain for The Washington Monthly, the steady expansion of corporate monopolies has resulted in a fundamentally unstable economy.

The U.S. simply does not create jobs at the rate it once did, and companies aren’t held accountable to market forces like competition. Many of our monopolies are hidden, as Lynn and Longman note. Macy’s and Bloomingdale’s seem like competitors, but they’re owned by the same holding company. The same dynamic holds true in auto manufacturing, banking, pet food, health care and IT. Consumers think they’re choosing between competing goods and services, when in fact they’re shopping in different divisions of the same corporate Goliath.

All hope is not lost. As Laura Flanders emphasizes for GRITtv, the passage of health care reform proves that the Obama administration and Congress can make substantive progressive changes when they put their minds to it. The question is whether Obama is willing to limit his economic accomplishments to lower-level issues, or go big and take on the deep-pocketed corporate campaign contributors.

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.

 

Jobs bill (barely) passes House

The House of Representatives approved the Jobs for Main Street Act yesterday by a vote of 217 to 212. No Republicans supported the bill; the no votes included 38 Democrats and 174 Republicans (roll call here). According to this report in The Hill, most of the reluctant Democrats were concerned about increased spending in light of the large federal deficit. The bill passed only after retiring Democrat Brian Baird (WA-03) "changed his vote to put Democrats over the top."

The bill uses approximately $174 billion that was allocated to the bailout (TARP) program last year, which has been returned. President Obama recently endorsed the idea of using returned TARP funds for a jobs bill.

A DCCC press release summarized the main points of the bill (HR 2847):


·        $48 billion to rebuild crumbling roads and bridges, modernize public buildings, renovate schools, and clean our water and air.

·        $27 billion to help states save or create jobs for teachers, hire more law enforcement officers, and hire and retain firefighters. This includes hiring and training programs to support Americorps volunteers, youth summer jobs, and job training for people in high growth industries including health care and clean energy.

The measure helps America 's small businesses and creates jobs by extending several Recovery Act initiatives, including:

·        Eliminating fees on Small Business Administration (SBA) loans.

·        Raising the portion of a loan that the SBA will guarantee to 90 percent (from 85 percent) to encourage banks to lend to small businesses.

The measure also provides $79 billion to help families hardest hit by the recession through extending unemployment and COBRA benefits, protecting health coverage for millions through Medicaid (FMAP), continuing the child tax credit, and adjusting the poverty guidelines so people don't lose benefits.

A statement from Representative Bruce Braley (IA-01) hailed the fact that yesterday's jobs bill included "strong Buy America language":

The Buy America language included in the Jobs for Main Street Act ensures that American made materials must be used for construction, alteration, maintenance or repair of transportation and infrastructure projects funded in the bill. These materials include American-made steel, iron and manufactured goods.

I frankly find it bizarre that several dozen House Democrats claim to think the deficit is a bigger political problem than rising unemployment rates. When the House votes on further funding for the war in Afghanistan, I don't expect many of those 38 Democrats to be as concerned about deficit spending.

There's more...

Weekly Audit: Saying 'No' to Corporate America

By Zach Carter, Media Consortium Blogger

By proposing financial reforms that won't curb Wall Street excess, U.S. policymakers have offered an unacceptably weak response to our enormous financial crisis. If voters don't demand that their elected representatives help workers and consumers instead of simply boosting corporate profits, the economic downturn will last for several more years and leave the economy vulnerable to another bank-induced meltdown.

The banks have unbelievable lobbying clout. In an interview with Cenk Uyger of The Young Turks, Heather Booth,  executive director of Americans for Financial Reform, describes how one-sided the Wall Street reform fight has been. Despite broad public support for a fundamental financial overhaul, going up against the bank lobby is, as Booth describes, "a David and Goliath fight." It's basically Americans for Financial Reform against every major corporation in the U.S.

Booth notes that the Chamber of Commerce has vowed to spend $100 million on a campaign to defend the "so-called free enterprise system"--you know, the "free market"--in which corporate lobbyists spend millions of dollars to write the rules of the economic game. Just seven financial lobby groups have spent a massive $147 million peddling influence over the past two years.

In fact, as Janine Wedel observes for Salon, the U.S. economic system is starting to look an awful lot like the clannish systems of government that looted Eastern European countries in the early 1990s. Today, the public good takes a backseat to the narrow interests of powerful corporations.

With the Obama administration working with advisers from Citigroup and Goldman Sachs, we're not just watching Wall Street write its own regulations. We're watching the financial sector re-write the official role of the government in the economy. In this new role, the government's top priority is securing profits for corporate America.

"The intertwined coterie of financial and policy deciders in the United States is creating not only the financial architecture of the future, backed by the power and billions of the state, but, more generally, new relationships between the bureaucracy and the market," Wedel writes.

GRITtv's Laura Flanders echoes this theme in an interview with John Perkins, author of Confessions of an Economic Hit Man, and journalist Russ Baker. Lobbyists have so thoroughly hijacked the U.S. economy, Perkins argues, that the nation's government now resembles those of Latin American nations he worked with in the 1980s and 1990s.

"I don't think the U.S. president has much power these days, to be honest with you. . . . It's the big corporate executives who call the shots today, and let's face it, they financed Obama's campaign," Perkins says.

The very efforts the government deployed to save the financial system are being perverted to create another disaster. In a five-part interview with Paul Jay of The Real News, Jane D'Arista, an influential economist and author of The Evolution of U.S. Finance, explains how Wall Street destroyed itself over the past decade. By borrowing massive amounts of money, Wall Street was able to place bigger bets in the capital markets casino, resulting in huge profits when those bets paid off. But when the bets backfired, the losses were just as massive. Companies couldn't pay them off, so the government stepped in to support them.

One of those support mechanisms came from the Federal Reserve, which began making incredibly cheap loans to firms that engaged predominantly in speculative trading. The Fed used to lend exclusively to commercial banks, which used the money to make loans that helped grow the real economy. But now those loans are being used to support risky securities trading, so we're seeing big profits in the financial sector, without much help for workers and consumers. This is a major long-term problem--if the economy can't keep pace with the Wall Street casino, those speculative trades are going to backfire and we'll be right back to the chaos of September 2008, only with an even weaker economy.

All hope is not lost. As Perkins and Baker emphasize in their interview with Flanders, citizens have to demand corporate accountability and a government that actually serves the public good. For much of the past decade in Latin America, governments have been elected that stood up to major corporations and demanded that they stop pillaging their nation's resources at the people's expense.

In addition to demanding much stronger reforms for the financial sector, we have to demand that the government respond seriously to problems facing workers. With the unemployment rate at 10.2% and expected to go still higher, we need jobs. As Steve Benen notes for The Washington Monthly, Obama's economic stimulus package helped stave off total economic devastation. What we need now is another stimulus to get people back to work, not just slow the pace of job losses.

"A bold, ambitious jobs bill can make a huge difference--the stimulus got us out of the ditch, a new effort can get us going in the right direction again," Benen writes.

And the only argument against this plan is that we "can't afford it." That is--the government's fiscal deficit is too high, and we just can't spend money to help people in real economic trouble.

But as Christopher Hayes writes for The Nation, the deficit excuse is pretty pathetic. Economic stimulus bolsters economic growth, thus improving tax returns for the government in the future. And any spending on any project can be taken out of the budget from other measures. Hayes notes that our massive military spending is almost never included in discussions about "fiscal responsibility." If we were really worried about how much it would cost to fix the economy, we could stop spending so much money killing people.

"Fiscal conservatism and deficit concern is nearly always code speak in Washington for something else," Hayes writes. "Most often, when someone in Washington says they're concerned about the deficit, what they're really saying is, 'I would like to make sure we have a government that focuses maximally on blowing people up.'"

The government has to start saying 'no' to corporate America. Corporate profits are not the same thing as a strong economy. We need to demand an economic policy that answers to workers, not just bank balance sheets.

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.

There's more...

Diaries

Advertise Blogads