bailout - Represent Consumers

Bankers' gambles – now with a bailout guaranteed

After the 2008 banks bailout, we were promised that financial reform was going to prevent future bailouts.

Never again.

But as we approach the fourth anniversary of the financial collapse, we’re learning just how hollow those promises were.

The most recent example stems from reports that regulators have secretly designated derivatives clearinghouses too big to fail in a financial emergency.

That means that in a crisis, such clearinghouses, in which risky credit default swaps are traded, would be bailed out at taxpayer expense through secret access to cheap money at the Federal Reserve’s credit window.

That’s where the big banks and the rest of corporate America lined after the 2008 to borrow trillions at low interest – with no strings attached.

The Fed didn’t require the banks to share that low interest with consumers or homeowners. The Fed didn’t require that banks make some attempt to fix the foreclosure mess. The Fed didn’t require corporations hire the unemployed or lower outrageous CEO pay.

The Fed just shoveled out the cheap loans.

Now the Fed is planning to extend that generosity, as a matter of policy, to derivative clearinghouses – which puts taxpayers directly on the hook for Wall Street’s risky gambles, like the ones that recently cost J.P. Morgan Chase $2 billion.

While those trades didn’t threaten to sink the economy, it was the unraveling of those kinds of complex gambles that tanked the economy in 2008.

Nobody knows for sure how large the derivatives market is, but the estimates are truly mind-boggling. One derivatives expert estimates that there were $1.2 quadrillion in derivatives last year – 20 times the size of the world’s economy.

While requiring these derivatives to be traded on clearinghouses is supposed to increase transparency, that assumes regulators are aggressive, diligent and understand the trades.

But signaling that these derivatives should be eligible for a bailout is nothing short of insane, at least from the taxpayers’ perspective. From the bankers’ perspective, it’s a pretty good deal, and a reassuring indication that nothing much has changed since the financial crisis: the regulators are still deep in the bankers’ pocket.

Meanwhile, the real reforms that might have a shot at actually fixing the problems and protecting our economy from the big bankers’ addiction to risk get little or no consideration in what passes for political debate.

The best step we could take is to re-impose the Depression-era Glass-Steagall Act, which creates walls between safe, vanilla, and consumer banking (which have traditionally been federally guaranteed, and riskier investment banking and derivatives trading But the bankers oppose Glass-Steagall, and for the present, they remain in control of both political parties and the regulators’ financial policies.

Federal Reserve / Glass-Steagel / Martin Column - 06/26/2012

How Mitt Could Win

Why doesn’t Republican presidential contender Mitt Romney’s free-market gospel include a ringing call to break up the too big to fail banks?

Over at the conservative American Enterprise Institute blog, James Pethokoukis suggests Romney could benefit if he did just that.

After all, this is no longer a position favored only by Occupy Wall Street.

All kinds of establishment figures now acknowledge that breaking up the big banks is needed to heal our financial system, and that as long as we don’t, taxpayers could be on the hook for another bailout.

The most recent public official to reach this conclusion is none other than Richard Fisher, the president of the Dallas branch of the Federal Reserve, who last week issued a report in which he concluded: “The too big to fail institutions that amplified and prolonged the recent financial crisis remain a hindrance to full economic recovery and to the very ideal of American capitalism.”

This should be catnip for Romney, who professes to be all about ending government interference in the free market.

What the Dallas Fed’s report makes clear is that the Dodd-Frank financial reform legislation and the policies of the Obama administration haven’t lessened the power of the too big to fail banks, or made them healthier – it’s helped them gain market share while doing little to force them to reduce the same risky business practices that led to the 2008 financial collapse.

While Dodd-Frank theoretically sets up a process to deal with too big to fail institutions when they get in trouble, our politicians and regulators by their actions have signaled to the big banks that they don’t have the guts to break them up or get them to change how they do business.

For a politician in Romney’s position, staking out a position against the big banks would give him the high ground against the president, who claims to be reining in the banks’ bad behavior but isn’t.

It would help him with the Tea Party activists, who rail against the bank bailouts and crony capitalism. Promising tough action on the banks would also help him with independents who understandably don’t trust all the political double-talk they hear.

But Romney doesn’t have the guts to do it. His free market rhetoric stops right at the bankers’ door, where he must appear meekly with hat in hand, asking for donations, just like the president of the United States, from bankers who continue to prosper only because of the trillions of dollars worth of favors done for them by politicians using taxpayers’ money.

The top 5 donors to Romney’s campaign are people associated with bailed out banks, according to the Center For Responsive Politics. The president raised an unprecedented $15.8 million from the financial sector in 2008, while his administration was in the midst of bailing them out. Though Romney has the edge in Wall Street fundraising now, the president has vowed to fight back – including a pledge not to demonize Wall Street.

The big media and the politicians all talk about these policies as though they’re great intellectual debates about clashing views of the role of government. But when it comes to the too big to fail banks, all Romney’s free market preaching is just so much hot air.

This is the dishonest heart of our politics. What neither Romney nor the president, nor apparently the American Enterprise Institute, can acknowledge is that it’s all about the money.

Martin Column / Mitt Romney / President Barack Obama / Too Big To Fail - 03/30/2012

News Flash: Giving Banks Billions Won't Create Jobs

Last year, President Obama signed into law the $30 billion Small Business Lending Fund as a way to stimulate job creation.

"It's going to speed relief to small businesses across the country right away," Obama said at the time.

It was supposed to help create 500,000 jobs.

Well, not so much.

Not only has the program been a dismal failure, with few banks applying to participate, but it turned into another giant taxpayer handout to bankers.

Only $4 billion was handed over to banks under the lending scheme. The bankers didn’t use it to boost small businesses, and it turned out they weren’t even required to. Instead the bankers used more than $2 billion to pay off their bailout debt to the Troubled Asset Relief Program, according to a story in the October 12 Wall Street Journal (no link).

“It was basically a bailout for a 100-plus banks,” Giovanni Coratolo, vice-president of small-business policy at the U.S. Chamber of Commerce, told the Journal.

None of this should come as a surprise. Bankers said at the time that the problem was not that they didn’t have enough money to lend, but that demand for loans was weak because of the continuing bad economy.

“Until you start to see the economy improve and job growth you won’t see lots of loan demand,” Thomas Dorr, chief financial officer of Bank of Birmingham in Michigan, which received $4.6 million from the program, told Bloomberg. “You can’t force banks to lend.”

The lending program was either just another veiled handout to the banks or another lame attempt at trickle-down stimulus. Either way it contributes to the strong impression that our political leaders aren’t actually working on solutions, they’re getting in our way.

Congress / D.C. Disconnect / Martin Column / President Barack Obama / TARP - 10/13/2011

D.C. Disconnect: Beltway Media Edition

The historic first ever Federal Reserve press conference delivered even less than the little that was expected.

That was in part because Fed chair Bernanke is good at making economic policy boring and opaque.

After all, that is his job.

But the reporters who cover the Fed have no such excuse.

At the press conference, they shared none of the outrage that continues to be expressed by the rabble outside Washington who are upset by the Fed’s bailout of big banks, and who fought to make the agency more transparent.

The whole thing had the flavor of a rote exercise, featuring people who appeared to be sleepwalking rather than covering the secretive agency that handed out trillions to the financial industry with no questions asked.

There was no skepticism, no appearance that the reporters had done their homework to challenge the Fed’s behavior in boosting banks while abandoning working people. There was none of the excitement that reporters worked up for the non-story of Obama’s birth certificate.

The press conference confirmed what we already knew: federal authorities, including Bernanke have abandoned the unemployed. They’ve moved on. Although employment is one of two of Bernanke’s mandates, he insists his hands are tied.

The reporters participating in this historic occasion treated the bailout as old news. Somehow they managed to miss that every time the Fed provides information about its actions in the bailout, it raises more questions than it answers.

Thankfully, not everybody in Washington shares this view. Sen. Bernie Sanders, the independent socialist from Vermont who caucuses with the Democrats, has been doing his best to dog the Fed.

A day before Bernanke held his press conference; Sanders released the results of a study he ordered from the Congressional Research Service of the Fed’s secret lending program. That study showed how the big banks gamed the bailout, profiting from investing the low interest loans the Fed gave them rather than loaning the money to businesses to get the economy going.

Sanders put out a press release with a catchy headline – “Banks Play Shell Game With Taxpayer Dollars.” This wasn’t enough to rouse the reporters who cover the Fed; nobody could be bothered to ask Bernanke about it as his press conference. According to the research service, the banks pocketed interest rates 12 percent greater than the low-interest emergency loans the Fed was giving them. The purpose of this emergency loan program had nothing to do with enriching bankers; it was justified only because we were told it was the only thing that would get the economy going.

It’s worth remembering that Bernanke and the Fed fought a losing battle against the release of any details about its secret lending program. You would have thought the reporters would have welcomed the opportunity to subject Bernanke’s decision-making to public scrutiny.

Federal Reserve / Martin Column / Outrage - 04/28/2011

D.C. Disconnect: The Real Yes Men

While the political prank behind news reports that General Electric had decided to pay all its taxes was quickly uncovered, a much greater fraud continues undetected.

Behind the GE prank was a group of political satirists and activists who call themselves the Yes Men. But it’s the nation’s major media that’s really earned that name with its relentless unquestioning hype of deficit hysteria and the need for harsh cuts to social programs.

Anointing only those politicians willing to consider the most severe cuts as the most serious, the major media haven’t questioned who’s behind this austerity agenda, and who will profit from it: Wall Street.

It’s the same crowd that sold the politicians and the public on the benefits of financial deregulation in the 80s, and then scared the country into providing Wall Street with a no-questions asked bailout. We all know how that worked out for the rest of us.

Who would fall for their snake oil a second time without closer examination? The real yes men just keep out churning out the Wall Street-induced hysteria with a straight face. When regular folks insist they're more concerned with unemployment and foreclosures than they are with the deficit, the real yes men just tut-tut.

The little people will never understand.

For Wall Street and its political enablers, the austerity agenda hoax is a just a Trojan horse to carry them to their real goals: crippling government’s ability to regulate and keeping taxes low for the wealthiest Americans.

The financial industry plays the two teams off each other: Republicans claim the Democrats aren’t man enough to make real cuts, while Democrats argue we should go along with their version of austerity to avoid the Tea Party’s lunatic extremes.

After caving in and extending the Bush era tax cuts last year, President Obama has recently talked about sprinkling increased taxes for the wealthiest among the cutbacks on the poor and middle class. But so far in his presidency he has shown little stomach to fight for even his own positions when they encounter resistance from either Wall Street or Republicans.

One of the most bizarre aspects of the continuing hoax is the respect given to the credit rating agencies, which have been justly chastised, but so far escaped prosecution, for their irresponsible antics in the financial collapse. They have about as much credibility as the recently junked color-coded terror alerts.

Now we have credit rating agency Standard & Poor’s, which never raised alarms about toxic mortgage securities, and slept through the both the budget-busting Bush tax cuts and the Obama extension, throwing the stock market into conniptions over the deficit.

It’s not just a coincidence. The ratings agencies are bought and paid for by servants of Wall Street. They know that Wall Street was reaping big short-term profits off the mortgage securities, and favors tax cuts for the rich. They also know Wall Street favors government-crippling budget cuts.

Just how long will the real Wall Street, its servants and cronies get away with this ruse?

Around the Web / D.C. Disconnect / Martin Column - 04/22/2011

Government of Honeywell, By Honeywell, For Honeywell

Of all the corporate big shots offering the rest of us stern lectures about the sacrifices we’re going to have to make, is there any more infuriating than Honeywell’s CEO’s, David Cote?

Cote, who was paid $20 million last year, has been a particularly outspoken member of President Obama’s deficit commission, with a special kind of shameless gall to be able, with a straight face, to warn the rest of us that we will have to get by with less retirement and health care if the country is going to deal with its deficit.

I’d like to propose a new rule: before the president hands somebody like Cote [pronounced Ko-tay] a billion-dollar megaphone, that person and his company should demonstrate that they are following generally accepted rules of good citizenship.

In the case of Honeywell, the company makes the rules it has to live by. And why shouldn’t it? One of the largest contractors to the federal contractors, it’s also one of the heaviest hitters when it comes to lobbying, spending $6.5 million last year. Among manufacturing firms, only General Electric spent more.

But when it comes to political contributions, Honeywell far outstrips GE, with $2.3 million spent in the 2009-2010 election cycle compared to GE’s $1.4 million.

And Honeywell doesn’t just rely on high-paid lobbyists, when the bailout faced a skeptical public in 2008, Cote (who sits on the board of J.P. Morgan Chase) wrote to his employees to suggest they get out and support the bailout.

But in every set of rules that the government sets related to Honeywell, those millions spent influencing the government turn out to be very solid investments.

For example, taxes. Cote’s Honeywell doesn’t pay any, according to the Citizens for Tax Justice.

It’s all perfectly legal in the rigged world of the U.S. tax code, where corporations like Honeywell use the political access that only money can buy to write the rules they have to live by.

How rigged is the U.S. tax code?

Well, for example, look at the plight of homeowners who lose their home to foreclosure. Even after those poor saps lose their homes, if the lender forgives some of the mortgage debt because the house sells for less than the homeowner owed, the IRS could still come after them.

I know, I know, those homeowners should have had the foresight to hire more lobbyists and increase their contributions to political campaigns.

Taxes are hardly the only place where Honeywell falls short on the standards of good citizenship.

Honeywell has major contracts in Iran, and despite U.S. sanctions against that country, the company has taken a somewhat relaxed view toward compliance, agreeing that it wouldn’t take on any new work in Iran while it closes out its current work.

Because you wouldn’t want sanctions to be too disruptive to Honeywell’s ability to make profits.

Back home in the U.S., Cotes’ Honeywell has been especially good at squeezing sacrifices from other people, like its workers and the communities who live near its facilities.

Dirt Diggers Digest has compiled a useful summary of Honeywell’s actions at the Illinois plant that is the sole facility in the country where uranium ore is converted into the uranium hexafluoride gas used in the production of both nuclear power and nuclear weapons, a risky process using highly toxic materials.

Last year workers at the plant balked when the company sought to eliminate retiree health benefits, reduce pensions for new hires, cap severance pay and contract out maintenance. So Honeywell locked them out and brought in replacement workers.

After an explosion at the plant, Honeywell was cited by the Nuclear Regulatory Commission for improperly coaching replacement workers during investigations by federal inspectors, while the Environmental Protection Agency fined the company $11.8 million for illegally storing hazardous waste – only the latest in more than $650 million in fines for misconduct, according to the Project on Government Oversight.

But the federal contracts keep pouring in, because in Honeywell’s world, misconduct is just part of doing business, and doesn’t have real world consequences. And apparently that misconduct doesn’t give David Cote any qualms about telling the rest of us what we need to do.

Do you have candidates for most infuriating corporate bigwig? Let WheresOurMoney.org know.

Executive Pay / Financial Crisis / Martin Column / Outrage / Social Security / TARP - 04/16/2011

Happy Talk

Treasury officials and many politicians are busy patting themselves on the back because the Troubled Asset Relief Program will end up costing taxpayers less then expected.

The way these folks describe it the TARP and other aspects of the federal bailout were just supposed to function as a loan program for the banks while they were having some trouble.

TARP is also winning praise for having “restored trust” in our financial system.

Beyond the scary rhetoric that gave birth to the bailout and self-congratulatory sermons it’s being buried with, the bailout consisted of a set of rules and a way of picking winners and losers in the economic crisis that did anything but build trust.

Remember when the Fed chair, Ben Bernanke, insisted that he was a Main Street guy, that he was interested in the financial system only inasmuch as it helped out Main Street?

But the bailout institutionalized a system where the government could only afford to bail out the biggest bankers and corporate officials while abandoning smaller banks and business owners along with millions of troubled homeowners and vulnerable employees.

As Fortune’s Alan Sloane wrote, “the more bailout rocks you turn over, the more well-connected players you find who aren't being forced to pay the full price of their mistakes.”

Oh well, the apologists say, nothing’s perfect. It could have been so much worse.

One official who hasn’t joined in the festivities is Neil Barofsky, the former special inspector for the Troubled Asset Relief Program, who bid the bailout a scathing farewell in the New York Times, which you can read here.

The Obama administration and bailout apologists would like to have us believe that it was just a necessary first stage of the recovery to ensure that the bankers stayed rich and the wealthiest Americans’ increasing share of the nation’s wealth kept on growing.

But in Barofsky’s view, there was nothing inevitable about the no-strings attached bailout that filled the bankers’ pockets while offering little to Main Street. It had nothing to do with the operation of the free market either. It was very carefully crafted by public officials working hand in hand with Wall Street to maintain its power while gnawing away at the increasingly fragile livelihoods of ordinary Americans.

As Barofsky notes, “Treasury officials refuse to address these shortfalls. Instead they continue to  stubbornly maintain that the program is a success and needs no  material change, effectively assuring that Treasury's most specific  Main Street promise will not be honored.”

And while recent employment gains are welcome news, Dean Baker points out the losers – African-Americans among whom unemployment remains distressing high and wage earners in general, whose pay is not keeping up with inflation.

The bailout celebration is just part of the happy talk designed to buoy the notion that the recovery is well underway. But this bailout-fueled recovery continues to pick highly predictable winners – with the powerful, wealthy and politically connected doing swimmingly while everybody else just limps along.

Around the Web / Martin Column / SIGTARP / TARP - 04/04/2011

From Prosecutions to Peanuts

It was only last December that the head of a 50-state attorney general investigation into foreclosure fraud boldly told homeowner advocates, “We will put people in jail.”

That was Tom Miller, Iowa attorney general, who added, “One of the main tools needs to be principal reductions, just like in the farm crisis in the 1980s…there should be some kind of compensation system for people who have been harmed…And the foreclosure process should stop while loan modifications begin. To have a race between foreclosures and modifications to see which happens first is insane.”

That was then. Now Miller is backing off his tough talk, replacing it with a strategy of negotiating with the big banks and a bunch of federal agencies to come up with a settlement.

The amount of the potential settlement is $20 billion, according to press reports.

Gone is any notion of prosecutions.

There’s been a lot of discussion about whether this amount is too high or too low. The banks contend that they might have been sloppy about their paperwork but they foreclosed on only a few people who hadn’t been making their mortgage payments. No harm, no foul.

But homeowner advocates and critics are outraged, arguing that the banks are guilty of more than slovenliness, they violated laws intended to protect consumers. You can’t pass laws that require banks to follow certain procedures and then allow the banks to flout them. That reinforces one of the most corrosive aspects of the bailout and its aftermath – that the system is rigged so that the banks don’t have to follow the law.

Not to mention that $20 billion is pocket change to the big banks and won’t go far in modifying the mortgages that they refused to touch so far.

In addition, any fund that is controlled by the banks rather than a responsible government agency is a recipe for continued inaction by the banks. See the disastrous Obama Administration HAMP program, which is somewhere between an abject failure and an actual scam that rips off homeowners.

Miller’s retreat is not the only distressing signal coming from the foreclosure front. Here in California the new state attorney general, Kamala Harris, made the strong protection of homeowners in foreclosure a key plank of her campaign. Yet her office recently signed off on a feeble $6.8 million settlement of a lawsuit against Angelo Mozilo and another top official of Countrywide Financial who presided over that company’s orgy of subprime lending before the financial collapse.

$5.2 million of the money goes into a restitution fund for victims. Mozilo and his president, David Sambol, admitted no wrongdoing. They’re not on the hook for the money- Bank of America, which bought Countrywide will pay it for them.
As David Dayen points out on Firedoglake, the settlement was probably inherited from her predecessor, the present governor, Jerry Brown. But that doesn’t mean she has to tout such a pittance as some great victory for the state.

It’s just a very small drop in a bucket with a very big leak in it.

If you live in California, you can call Harris’ office and suggest she stop caving into predatory lenders and start living up to her campaign promises.

Wherever you live, please contact your attorney general and remind them they are, after all, not the bankers’ buddies, but the people’s prosecutors.

Here are numbers where you can reach your state attorney general.

Around the Web / Foreclosures / Martin Column / Outrage - 03/04/2011

Around the Web: Bigger Than Wikileaks

While the Wikileaks dump of secret diplomatic got more publicity, the Federal Reserve’s reluctance release of data on details of what it was up to in the bailout is actually the bigger story.

It’s a giant step towards the direction of democracy in a financial system that hasn’t had any.

What are we finding out? For one thing, just how much dishonesty is built into our knowledge of the financial system. Because corporate leaders never expected the data to be released, they lied, mischaracterized or downplayed their reliance on the Fed’s largesse.

Aaron Elstein lays it out at CrainsBusinessNewYork.com in a blog post headlined `Whoppers from the Bailout Binge’, (ht the Audit, which provides an excellent roundup of Fed dump coverage).

“In some cases,” Elstein writes, “the actions taken by companies jarringly contrast with their executives’ public comments about the bailout program.”

Along with the stunning secrecy that has surrounded the process and the dishonesty of the corporate recipients of the taxpayers’ generosity, a couple of other main themes emerged from scrutiny of the Fed data.

First, not only did U.S. taxpayers come to the aid of large European banks, they also gave emergency loans to many of the biggest U.S. businesses, like GE, Verizon and even Harley-Davidson. All of these institutions were deemed too big to fail, or even suffer more than a some sleepless nights’ worth of economic distress in the financial meltdown. About the only entities not deemed worthy of saving in the meltdown were many of the taxpayers themselves who foot the bill for the whole extravaganza. The institutions that dreamed up the toxic loans got a bailout the taxpayers should have read the fine print more carefully, dammit!

Second, the Fed’s $3.3 trillion rescue scheme was rife with conflicts of interests. Members of regional Fed boards sat in on decisions to help out their own institutions, and corporations like BlackRock acted as paid advisers to the process and also bought securities on behalf of clients as part of the Fed’s efforts.

To put what’s happening in perspective, Matt Stoller, former senior policy adviser to former Rep Alan Grayson, the fiery Florida Democrat who recently lost his re-election bid, wrote this fine piece in Naked Capitalism.

Around the Web / Martin Column - 12/04/2010

Fear Factor, Financial Crisis Edition

The administration has been touting what a good deal the Troubled Asset Relief program turned out to be for taxpayers – most of the $700 billion has been repaid; the banks after all, did not collapse, and it only ended up costing us around $50 billion after repayments.

“TARP undoubtedly helped to stem the financial panic in the fall of 2008 and contributed to the stabilization of the financial system,” Tim Geithner, the treasury secretary, said in a statement today.

But now we’ve got a whole new threat to the financial system, according to the bankers. They contend that if the public ever finds out the facts surrounding the rest of the bailout, it will cause them “irreparable harm.”

This is the part of the bailout the administration doesn’t talk about, with costs that dwarf the piddling billions spent on the TARP program. These are the trillions in secret loans the Federal Reserve provided financial institutions.

If it wasn’t for a dogged reporter at Bloomberg News, it would all still remain a big secret.

But the reporter, Mark Pittman, convinced his employer that the public had a right to know who the Fed was loaning the taxpayer’s money to, and under what terms. Bloomberg filed suit in November 2008.

The Fed and the banks fought the lawsuit for nearly two years. But in August a federal appeals court rejected the Fed and the banker’s arguments. Fed president Ben Bernanke announced in late September that the agency would finally make the information public by December 1.

Anybody care to bet on the chances that the big banks will fold when the information comes out? Any bets on revelations that will graphically show just how cozy both Bush and Obama administrations were with the big banks?

The banks’ response to the lawsuit reminds me of the atmosphere of fear and crisis the previous administration and the banks created, with the major media’s assistance, at the time of the original bailout. No time for questions, no time for debate. Hand over the blank check now or the whole economic system will blow up, they screamed.

Pittman died last year at 52. He remains one of the few heroes that emerged from the financial collapse, who raised tough questions in the months and years leading to the meltdown and was not intimidated by the banks’ fear mongering, continuing to demand answers.

Meanwhile, at some point, the bureaucrats will get around to the audit of the Federal Reserve’s activity since 2007. Congress passed that audit with broad bipartisan support in the face of fierce opposition from the administration, as part of financial reform. No doubt we will hear another round of predictions of disastrous consequences as the results of that audit are readied for release. It’s supposed to be conducted by the General Accounting Office.

From the beginning of the crisis to today, fear has been the most potent weapon used by the bankers and the bureaucrats to get their way, along with the complexity of the system the banks are always ready to clobber the public with. The spirit of reporter Mark Pittman remains one of the strongest antidotes we’ve got.

Around the Web / Federal Reserve / Martin Column - 10/06/2010