The Secret $7.77 Trillion Bailout

[blueduck37.livejournal.com]

Apologies if this story was posted here already; I couldn't find a post on it.

Now we've all heard the lie statement that the Tea Party began as a cultural backlash to a new President, who to conservatives was the face of a changing America that scared them protest and backlash to the 2008 TARP program even though no conservative protests occurred until early 2009.

So I assume they will join Occupy Wall St in demanding major changes to Wall St and our banking system after Bloomberg News' big story about a shadow bailout that was occurring, via the Federal Reserve. They gained this info through the invaluable Freedom of Information Act. As the article notes, "It dwarfed the Treasury Department’s better-known $700 billion Troubled Asset Relief Program, or TARP. Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year."

The article discusses how this "secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger."

To me, the most anger-inducing facts are the lies and deception that surrounded this, from the Wall St. end. We learn that Wall St firms lied to investors (pretending to be healthy, while this was going on), as well as to Congress, who passed a weak reform bill with bad information.

For instance, we learn that-

Bankers didn’t disclose the extent of their borrowing. On Nov. 26, 2008, then-Bank of America (BAC) Corp. Chief Executive Officer Kenneth D. Lewis wrote to shareholders that he headed “one of the strongest and most stable major banks in the world.” He didn’t say that his Charlotte, North Carolina-based firm owed the central bank $86 billion that day.
....

JPMorgan Chase & Co. CEO Jamie Dimon told shareholders in a March 26, 2010, letter that his bank used the Fed’s Term Auction Facility “at the request of the Federal Reserve to help motivate others to use the system.” He didn’t say that the New York-based bank’s total TAF borrowings were almost twice its cash holdings or that its peak borrowing of $48 billion on Feb. 26, 2009, came more than a year after the program’s creation.

And that-

New York-based Morgan Stanley (MS), took $107 billion in Fed loans in September 2008, enough to pay off one-tenth of the country’s delinquent mortgages. The firm’s peak borrowing occurred the same day Congress rejected the proposed TARP bill, triggering the biggest point drop ever in the Dow Jones Industrial Average. (INDU) The bill later passed, and Morgan Stanley got $10 billion of TARP funds, though Paulson said only “healthy institutions” were eligible.

Free market!

Multiple Senators are quoted as saying “We didn’t know the specifics," which is great for a democracy. It notes that having all of the information of what was really going on would have likely resulted in a different (stronger?) Wall St reform bill. As it is, it doesn't really fix anything. Too big to fail still exists, etc.

If news about a secret bailout and its surrounding deception doesn't spur any action for real change, nothing will. This is why many in the OWS movement feel the system is hopeless. And that's not good for democracy either.

[PS- Bloomberg News also has another great story about how, as Bush's Treasury Secretary, Hank Paulson passed on insider info to his hedge fund friends.]

Comments

[blueduck37.livejournal.com]

Okay, so will the Tea Party rise in physical protest to these new revelations the way they did to imaginary death panels and fantasy czars? Please show me!

I'm pretty sure their mantra is that the "free market"-- which would include all of the banks being discussed here-- can never do wrong and should not be regulated in any way.

OWS protesters will continue to whine about the private sector, ignoring that it was the public sector

The public sector bundled bad mortgages into securities and CDOs and deceived their own investors for the sake of short-term profit and enriched themselves with trillion dollar bailouts while not delivering on the promised lending to communities and small businesses??!! :0 Wow, Jeff, you've got quite a scoop on your hands... have you contacted the Bloomberg news service???!

[the-rukh.livejournal.com]

If the tea party is told to be angry by FOX they'll protest.

[kylinrouge.livejournal.com]

If banks weren't forced to lend to minorities (10% of all foreclosures) then this wouldn't have happened!

[badlydrawnjeff.livejournal.com]

Okay, so will the Tea Party rise in physical protest to these new revelations the way they did to imaginary death panels and fantasy czars? Please show me!

Probably not. As the Tea Party movement has largely become a political, as opposed to a protest, movement, they'll likely continue to support politicians and policies as opposed to march around.

The public sector bundled bad mortgages into securities and CDOs and deceived their own investors for the sake of short-term profit and enriched themselves with trillion dollar bailouts while not delivering on the promised lending to communities and small businesses??!! :0 Wow, Jeff, you've got quite a scoop on your hands... have you contacted the Bloomberg news service???!

That the mainstream media doesn't want to discuss the overregulation of financial and mortgage markets isn't something I can change, unfortunately. If I could, I'd be a very rich man.

[blueduck37.livejournal.com]

Shorter Tea Party: We were totally mad about Wall ST bailouts, we swear!!! We just don't want to do anything about it, and will call you a communist if you try.

[PS- It must've killed all those Wall St guys to have to make all those trillions of dollars that the public sector apparently forced them to make off of all of this. They hated every single penny of it. Poor bastards, my heart weeps for them.]

[badlydrawnjeff.livejournal.com]

I can just start responding unseriously to you if you'd prefer.

[blueduck37.livejournal.com]

What about my response was inaccurate?

1. The Tea Party claims it was birthed by bailout anger, but-- other than some vague expression that they don't want any more bailouts-- they don't want to do anything about the underlying problem(s).

2. You are the one shifting all the blame to the "public sector" and "overregulation" and have laid no (non-hypothetical) blame so far on the Wall St execs or banks, leading me to believe that you believe they made every decision under duress and not for the comically large sums of money they accumulated doing so.

[badlydrawnjeff.livejournal.com]

1. The Tea Party claims it was birthed by bailout anger, but-- other than some vague expression that they don't want any more bailouts-- they don't want to do anything about the underlying problem(s).

I don't see how you can say that. They're specifically looking to end the government's reliance on a "too big to fail" mindset that breeds bailout culture. You may not like what it may result in, but "let failing businesses fail" is doing something about the underlying problem, which is inappropriate government intervention in the market.

2. You are the one shifting all the blame to the "public sector" and "overregulation" and have laid no (non-hypothetical) blame so far on the Wall St execs or banks, leading me to believe that you believe they made every decision under duress and not for the comically large sums of money they accumulated doing so.

All the blame, no. Most of the blame, yes. Because, at the end of the day, many of the rules, regulations, and goals of governmental and government-sponsored entities accelerated the problem. As institutions not as heavily regulated need to compete, it creates a snowball effect. This does not mean that everyone diving in for a piece of the pie is innocent and the person offering a pie they should not have is completely guilty - that few, if any, stood back and said "hey, we might want to think about this" is a failure, but it's not the problem in place here. At the end of the day, companies want to make money - the government that tries to create winners and losers in the market deserves the most blame.

[blueduck37.livejournal.com]

You may not like what it may result in, but "let failing businesses fail" is doing something about the underlying problem

Okay. Well that isn't a policy proposal of any kind, but I suppose "let the economy crash for the sake of my principles" is indeed something.

At the end of the day, companies want to make money - the government that tries to create winners and losers in the market deserves the most blame.

I like this fantasy world in which the government controls Wall St.

[badlydrawnjeff.livejournal.com]

Okay. Well that isn't a policy proposal of any kind, but I suppose "let the economy crash for the sake of my principles" is indeed something.

"Let failing firms live or die without government intervention" is not a policy proposal? "Stay out of the private market" is not a policy proposal? What?

[blueduck37.livejournal.com]

This is an obvious political difference, but I don't want to subscribe to a belief system where letting the economy crash for the sake of my principles is okay, but reforming and regulating it so that it can function without crashing is outside the realm of acceptability.

[badlydrawnjeff.livejournal.com]

I'm not convinced that the economy would actually crash. I've had this interview bookmarked for a while, you might find it interesting (http://www.newyorker.com/online/blogs/johncassidy/2010/01/interview-with-eugene-fama.html#ixzz1eeQCS98Q).